Chemring (CHG) has lost many battles over the past few years, and the military supplier’s share price has surrendered significant ground. As a seller of consumables like flares, countermeasures and munitions it relies heavily on demand from conflict zones, so withdrawal from Afghanistan and Iraq has hurt. Its war, however, is not lost. New management is successfully tackling legacy issues, US spending cuts have been reined in and further restructuring should resurrect interest in the shares.
- Restructuring benefits to come
- Business sales should slash debt
- US spending cuts delayed
- Upcoming results a possible catalyst
- Fewer military conflicts
- Strategic plan carries execution risk
In fact, a counter attack is already underway. In late November, just days after Chemring’s share price sunk to a seven-year low, chief executive Mark Papworth shot down talk of a possible rights issue - the company remains on good terms with debt holders, he says - and repeated guidance for full-year results. Admittedly, expectations had been revised sharply lower only six weeks earlier - the US government shutdown, production issues and strong dollar cost about £8m of operating profit - but conditions are, at least, no worse, and problems are being resolved.