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Orders roll in for Chemring

The expanded order book covers around 95 per cent of expected revenue for the second half of the year
June 4, 2020

Defence engineer Chemring (CHG) saw underlying operating profit from continuing operations more than double to £25.6m in the six months to 30 April. This came as operational performance in the ‘countermeasure and energetics’ division improved and its Australian and Salisbury facilities resumed operations – they had closed last year to be refitted for production for the F-35 fighter jet.

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The 'sensors and information' division continued to secure orders from the US Department of Defence. This includes $32m (£25.5m) of additional orders for the next phase of its ‘indefinite delivery, indefinite quantity’ (IQIQ) contract for the Husky mounted detection system (HMDS). Post-period, the total value of this IQIQ was increased by $200m. With the group’s overall order book expanding by over a tenth since the October year-end to £504m, this covers around 95 per cent of expected revenue for the second half of the year.

Net debt reduced by a fifth from the 2019 year-end position to £61m, equivalent to 0.8 times cash profits (Ebitda) on a rolling 12-month basis. Meanwhile underlying cash generation from continuing operations more than doubled year-on-year to £56m. This was partly down to £15m of customer payments being brought forward into the first half of the year in response to Covid-19. While the dividend yield isn’t something to write home about, it is a sign of confidence in these turbulent times that the interim payout has been increased.  

Peel Hunt anticipates adjusted pre-tax profit of £48m and EPS of 12.9p for the full year, up from £39.4m and 11p in 2019.

CHEMRING (CHG)    
ORD PRICE:256pMARKET VALUE:£ 723m
TOUCH:255-256p12-MONTH HIGH:288pLOW: 146p
DIVIDEND YIELD:1.4%PE RATIO:20
NET ASSET VALUE:111p*NET DEBT:19%**
Half-year to 30 AprTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20191394.31.31.2
202019119.05.81.3
% change+37+342+346+8
Ex-div:20 Aug   
Payment:11 Sep   
*Includes £131m in intangible assets or 46p a share, **Includes £6.2m in lease liabilities