ii view: Chemring announces £40m share buyback

AGM trading update

• Order book of £1.35 billion (30 January 2025), up from £991 million a year ago
• New £40 million share buyback programme

Guidance:

• Continues to target annual revenue of £1 billion by 2030, up from 2024’s £510 million 

Chief executive Michael Ord said:“The current financial year continues to plan and our outlook remains in line with market expectations. The group is increasingly well positioned, with a strong and sustainable platform for future growth. Given the board's growing confidence in the long-term potential of the group it has decided to commence a new share buyback.”

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ii round-up:

Chemring Group (LSE:CHG) today detailed further order book growth with the maker of defence and aerospace equipment launching a new share buyback programme. 

A new record order book of £1.35 billion as of 30 January, rose from £991 million a year ago, pushed by demand for both its two arenas of Countermeasures and Energetics and Sensors and Information products. The new share buyback programme of up to £40 million, will start immediately and potentially run through until the group’s AGM in 2027.  

Shares for the FTSE 250 company rose 4% in UK trading having come into this latest news up 6% over the last year. That’s similar to major defence provider BAE Systems (LSE:BA.) as well as the 250 index itself over that time.     

Chemring’s Countermeasures and Energetics products are used by military aircraft to fool ground to air missiles, along with providing cutting-edge raw materials and aircraft safety components. The sensors and information business supplies products to detect biological and chemical weapons, as well as being used in the theatre of electronic warfare.

Group-wide order intake totalled £393 million since 31 October, an increase of 187% on the prior year’s orders of £137 million. 

Chemring believes that with the new US government pushing for significant increases in NATO defence spending and European countries recognising the need to scale up and co-ordinate production, its opportunities continue to grow. 

The group remains on track to achieve its ambition of increasing annual revenue to £1 billion by 2030, potentially up from 2024’s £510 million.

First-half results to 30 April are scheduled for 3 June.  

ii view:

Started in 1905, Chemring is today headquartered in Romsey, Hampshire, employing around 2,600 people across its UK and overseas operations. Group customers include military organisations, security and law enforcement agencies, as well as commercial aerospace markets. 

Countermeasures and Energetics accounted for most revenues during 2024 at 58%, with Sensors and Information, and including its specialist Roke technology unit, focused on cybersecurity, secret cloud, and artificial intelligence, making up the balance. 

For investors, previous operational challenges for its US business, caused by the weather and hindering production, should not be forgotten. An estimated price earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap. Costs for businesses generally remain elevated, while government spending on defence has historically been easier to cut than that of health or education.    

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On the upside, global geopolitical tensions continue to push Chemring’s order book to new records, supportive of future revenues. A new share buyback programme looks to underline management’s confidence in the outlook. Both product and geographical diversity exist with the Roke unit bringing a specialist focus on technologic warfare, while the dividend payment has increased consecutively for more than the last six years, leaving the shares sat on an estimated future yield of around 2%. 

For now, and while not without risks, some exposure to defence looks to remain sensible in an uncertain world with Chemring a flavoured play in the City.   

Positives: 

• Business type and geographical diversity
• Progressive dividend payment

Negatives:

• Defence is a volatile industry
• Exposure to currency movements

The average rating of stock market analysts:

Buy