Interactive Investor

ii view: defence play Chemring flags boost to orders

15th March 2023 15:32

Keith Bowman from interactive investor

As the lines between technology, defence and information security blur, this FTSE 250 firm's customers now include Rolls Royce and Vodafone. Buy, sell, or hold? 

AGM trading update

ii round-up:

Defence equipment maker Chemring Group (LSE:CHG) today detailed a rise in its order book as trading remained in line with management’s expectations. 

Orders as at 26 February totalled £677 million, up from £476 million in late February 2022 just as Russia’s invasion of Ukraine began. Expected full-year 2023 revenue is now 90% covered, up from 86% at the start of the financial year in October. 

Shares in the FTSE 250 company remained little changed in UK trading having come into this latest announcement down around 7% year-to-date. That’s similar to the fall for defence rival QinetiQ Group (LSE:QQ.) and below a 2% fall for the mid-cap index itself.   

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. Its electronic sensors and information business supplies products to detect biological and chemical weapons, as well as being used in the theatre of electronic warfare.

As previously flagged, trading performance and cash generation during 2023 is expected to be second half weighted, given order intake delays in 2022 due to US government spending budget negotiations.  

Demand for Chemring’s specialist technology business Roke, which includes advanced radar and information security, had continued, with customers away from national security and defence markets now including Rolls-Royce Holdings (LSE:RR.) and Vodafone Group (LSE:VOD)

First-half results to the end of April are scheduled for 6 June.

ii view:

Tracing its history back to 1905, Chemring today operates across the two divisions of countermeasures and energetics and sensors and information including its Roke business. Headquartered in Romsey Hampshire, it employs over 2,000 people. Countermeasures and energetics account for most of its sales at close to two-thirds of overall revenues. Geographically, the US generates around half of sales, followed by the UK at around a third and Europe most of the balance. 

For investors, defence orders can be volatile, with the timing of contracts often unpredictable. Costs for businesses generally remain elevated, currency movements can offer headwinds, while defence expenditure is politically driven and arguably easier to cut than say health or education.

On the upside, global geopolitical tensions remain high, with relations between the US and China now often strained. The UK’s defence budget is being increased following the chancellor's latest Budget, with Chemring potentially a beneficiary. Its Roke business has been growing given an emphasis on areas such as cyber security, secret cloud, and artificial intelligence, while its dividend payment has increased consecutively for more than five years. Chemring shares now stand on an estimated dividend yield of 2.5%. 

The lines between technology, defence and security have blurred and analysts currently calculate a consensus fair value price of over 380p per Chemring share. However, the share price has struggled since making a multi-year peak last Spring, and has lagged the performance of sector peers like BAE Systems. On that basis, it's one that investors might keep on the watchlist. 


  • Business type and geographical diversity
  • Progressive dividend payment


  • Defence is a volatile industry
  • Exposure to currency movements

The average rating of stock market analysts:


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