Military supplier Chemring's (CHG) 2013 numbers are awful. Withdrawal from Afghanistan, budget cuts, the US government shutdown and a hefty write-down at the Hi-Shear technology unit all contributed to big losses. Even underlying pre-tax profit fell by a quarter to £52.4m.
However, this was at least no worse than expected, and the new management team's focus on cash and costs is bearing fruit. Lower-margin businesses are being jettisoned and a far more resilient business is emerging.
Restructuring and a programme of disposals were the main reasons for our recent buy tip (229p, 9 Jan 2014), and there's good news on both. Previously flagged annual savings of £10m kick in this year and further cuts appear likely. The underperforming Clear Lake facility in the US has been sold, and the £6.1m proceeds will reduce debt. As part of an ambitious attempt to restore returns to 15 per cent, chief executive Mark Papworth expects to offload other lower-margin operations this year; the pyrotechnics and munitions division looks most vulnerable. Progress in this respect will certainly help nudge Chemring's net debt-to-cash profits ratio towards management's target of 1.5 times - from 2.65 currently.
Broker Citigroup expects a drop in adjusted pre-tax profit to £49.7m this year, giving adjusted EPS of 19.5p (from 21.6p in 2013).
CHEMRING (CHG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 243p | MARKET VALUE: | £470m | |
| TOUCH: | 242-243p | 12-MONTH HIGH: | 323p | LOW: 186p |
| DIVIDEND YIELD: | 3% | PE RATIO: | na | |
| NET ASSET VALUE: | 199p* | NET DEBT: | 65% | |
| Year to 31 Oct | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 504 | 95.8 | 39.8 | 10.0 |
| 2010 | 597 | 89.1 | 37.8 | 11.8 |
| 2011 | 724 | 85.4 | 37.7 | 14.8 |
| 2012 | 740 | 18.8 | 6.80 | 9.50 |
| 2013 | 625 | -56.6 | -24.6 | 7.20 |
| % change | -16 | - | - | -24 |
Ex-div: 16 Apr Payment: 9 May *Includes intangible assets of £304m, or 157p a share | ||||
