Austerity-struck defence budgets in the west and the threat of sequestration in the US are hurting flares and countermeasures manufacturer Chemring. True, there are some encouraging signs in these results, but investors are clearly focusing on the negatives and the shares tanked 10 per cent in a strong market.
Budget delays held up most of Chemring's US orders by about three months, including a $579m (£370m) contract for road-side bomb detectors, and getting approval for export licences for the Middle East is taking time, too. Counter-IED revenue sank 27 per cent as a result and operating profit was down 44 per cent. Pyrotechnics had a poor time, too, after a supply issue wiped out production of 81mm illumination rounds in the second quarter.
So with group underlying pre-tax profit, excluding the just sold marine business, down 21 per cent to £39.2m, Chemring must deliver two-thirds of profit in the second half to meet full-year forecasts. Still, a £1bn order book covers 94 per cent of sales for the year, and 37 per cent of that is from non-NATO countries where first half sales grew almost a third. A manufacturing licence in India and Saudi joint venture are expected soon.
JPMorgan Cazenove expects flat full-year adjusted pre-tax profit of £128m and EPS of 51.3p.
CHEMRING (CHG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 295p | MARKET VALUE: | £570m | |
| TOUCH: | 294-295p | 12-MONTH HIGH: | 657p | Low: 303p |
| DIVIDEND YIELD: | 5.5% | PE RATIO: | 10 | |
| NET ASSET VALUE: | 235p* | NET DEBT: | 68% | |
| Half-year to 30 Apr | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 319 | 39.1 | 16.4 | 4.0 |
| 2012 | 333 | 19.7 | 8.3 | 5.3 |
| % change | +4 | -50 | -49 | +33 |
Ex-div: 11 Jul Payment: 3 Aug *Includes intangible assets of £415m, or 215p a share | ||||
