October’s bruising profit warning already gave a good indication of the damaging effect a big Middle East contract delay would have on Chemring’s (CHG) profits. But even though the maker of detectors, surveillance systems, flares and bullets delivered on these reduced expectations, its shares have tanked after it unveiled details of its rights issue, cut its dividend and announced the departure of chairman Peter Hickson.
Boss Michael Flowers told us the four-for-nine rights issue, at 94p a share, will raise £81m. Most of this will be used to strengthen the balance sheet. Focusing less on servicing debt, he said, will enable management to better grow the business, namely by consolidating sites, automating manufacturing and improving products. Those priorities also led the group to rule out paying a dividend for at least a year.
Restructuring has become a key focal point for Chemring ever since the withdrawal of troops from Iraq and Afghanistan resulted in fewer contracts. Mr Flowers was pleased with efforts to improve safety and expand collaboration between businesses, and reckons further attention here will leave the group in good stead as global defence markets recover. Orders covering nearly 75 per cent of expected revenue for the year to October 2016 suggests an improved US backdrop is beginning to filter through.
Prior to these results, brokerage firm JP Morgan Cazenove slashed its adjusted EPS forecasts for the current financial year by 3 per cent to 14.9p, compared with 6.7p in FY 2015.
| CHEMRING (CHG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 160p | MARKET VALUE: | £ 309m | |
| TOUCH: | 158-160p | 12-MONTH HIGH: | 240p | LOW: 131p |
| DIVIDEND YIELD: | 1.5% | PE RATIO: | NA | |
| NET ASSET VALUE: | 150p* | NET DEBT: | 53% | |
| Year to 31 Oct | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 724 | 85.4 | 37.7 | 14.8 |
| 2012 | 740 | 18.8 | 6.8 | 9.5 |
| 2013 | 472 | -66.5 | -28.8 | 7.2 |
| 2014 | 403 | -5.2 | -0.7 | 4.1 |
| 2015 | 377 | -9.1 | -2.7 | 2.4 |
| % change | -6 | - | - | -41 |
Ex-div: Payment: *Includes intangible assets of £195m, or 101p a share | ||||
