Delays signing off big orders from the Middle East caused underlying operating profit at Chemring (CHG) to plummet by three-quarters to £5.5m. "Unfortunately, that market doesn't always run to our timeline," says the defence contractor's boss Michael Flowers, stressing that the delays had nothing to do with the falling oil price.
The second half looks far more promising for the manufacturer of flares and decoy technology. With work from the Middle East now flooding in - encouraged by heightened regional tensions - plus a US government contract for non-standard ammunition, orders have since exceeded £50m. Demand for countermeasures and energetic systems has boosted the order book by a quarter to £503m, of which £209m is due for delivery this financial year. Mr Flowers is confident of adding further contracts, including orders also from the Middle East for 3D-radar detection equipment, 40mm ammunition rounds and ground penetration radars, which are expected to deliver about £12m in profit.
The benefits of resolving previous operational issues are also expected to filter through into the second half. That includes increases in production and efficiency at Alloy Surfaces, plus further production gains at its Tennessee-based flare factory, following a fatal accident that caused operations to be temporarily suspended.
Despite management's optimism for the second half, broker JPMorgan Cazenove has cautiously cut adjusted EPS forecasts for the year to October by 3 per cent to 14.3p. The adjusted EPS forecast for the full-year 2016, meanwhile, was cut by 2 per cent to 15.4p.
| CHEMRING (CHG) | ||||
|---|---|---|---|---|
| ORD' PRICE: | 224p | MARKET VALUE: | £431m | |
| TOUCH: | 223.5-224p | 12-MONTH HIGH: | 248p | LOW: 182p |
| DIVIDEND YIELD: | 1.8% | PE RATIO: | na | |
| NET ASSET VALUE: | 153p* | NET DEBT: | 50% | |
| Half-year' to 30 Apr | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 209 | 5.1 | 2.4 | 2.4 |
| 2015 | 162 | -15.1 | -5.6 | 2.4 |
| % change | -23 | - | - | - |
Ex-div: 3 Sep Payment: 25 Sep *Includes intangible assets of £203m, or 105p a share | ||||
