Chemring optimistic of military action as contracts hover
Uncertainty over contract timing and a challenging environment cast a slight shadow over otherwise upbeat third-quarter results from military technology specialist Chemring, as the sector rejoices in anticipation of escalating geopolitical tensions.
Chemring Group
365.00p
17:05 25/04/24
The Hampshire-headquartered company enjoyed improved order intake, up 3.9% during the three months since end-April, and continued to de-risk its balance sheet by repaying £102.5m of loan notes with profits from the sale of its European Munitions unit. A new revolving credit facility has also been arranged.
Revenue from continuing operations for the quarter was down 30% to £77.5m compared the same period last year, mostly from Sensors & Electronics activity moving towards more long-term contracts.
Chief executive Mike Flowers said: "Our focus remains on creating a platform for growth, as reflected in our strengthened financial position and the improving quality of our operations.
"The group has continued to make progress, and whilst the trading environment remains challenging, I am pleased that Chemring has gained a number of contracts that position the group for the longer term."
He added that increasing NATO commitment indicated the potential for the recent trend of declining defence spending to moderate.
"Recent customer enquiries and improved order intake gives us confidence that our markets are stabilising. Whilst the timing of international order placement remains difficult to predict, Chemring is well positioned to benefit from any sustained increase in demand."
Based on current expectations of order intake and product delivery and absent any material change in customer behaviour, the company insisted full year expectations were "broadly unchanged" despite Flowers' admission that the trading environment was challenging.
However broker Investec said uncertainty over the timing of certain Sensors & Electronics contracts led it to downgrade its operational forecasts for 2014 and 2015E, albeit more than offset at earnings per share level by lower interest and tax in 2015.
Otherwise it was upbeat: "In our view management are successfully dealing with an array of issues. For the first time, this has started to positively impact the income statement with lower interest costs and operational improvements working through despite continuing tough end markets. Longer term, the pipeline is improving, especially for Sensors & Electronics and Countermeasures as important positions have been secured."
Westhouse analysts were also slightly nervous of their numbers, with its second half estimate of £221.7m now looking "slightly challenging to achieve", implying £144.2m revenues in the fourth quarter, double the third quarter figure.
"We see some negative risk here to our estimates."