ii view: defence star Chemring fixed on target

Full-year trading update to 31 October

• Order book of £1.3 billion, up from £1 billion on 31 October 2024
• Expects net debt of £95 million, up from £93 million in late April

Guidance:

• Expects full-year adjusted operating profits to prove in line with current City forecasts of around £75.8 million – potentially up from 2024’s £71.1 million

ii round-up:

Chemring Group (LSE:CHG) today flagged further significant contract wins during the second the half of the financial year to late October, with the defence equipment maker on track to achieve annual profits that match current City forecasts.

An order book of £1.3 billion is up from £1 billion in late October 2024, with the Hampshire headquartered company on target to hit analyst full-year profit forecasts of £75.8 million versus £71.1 million in 2024.

Shares in the FTSE 250 company remained little changed in UK trading having come into this latest news up by two-thirds so far in 2025. The FTSE 250 index is up around 6% year-to-date and defence giant BAE Systems (LSE:BA.) has gained more than a half over that time. 

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Chemring operates across the two divisions of Countermeasures & Energetics and Sensors & Information. Strength in Energetics, including new business for rocket motors ,offset softness in Sensors due to an ongoing delay for a UK government order. 

Chemring products include cutting edge raw materials and aircraft safety components as well as sensors to detect chemical weapons and equipment for used in electronic warfare.

Countermeasures contracts during the period include a new $35 million order from Australia’s Airbourne services. 

A drop in demand from the US department of defence for countermeasures now sees its US Alloy Surfaces business placed under strategic review, with the unit designated a discounted business for accounting purposes.  

Group debt for the period is expected to come in at £95 million, up from £93 million in late April. Accompanying outlook comments pointed towards increasing customer demand for the group’s tech-driven solutions along with resurgent demand for traditional defence capabilities.

Full-year results are due on 9 December. 

ii view:

Founded in 1905, Chemring today employs around 2,700 people largely across four production sites in four different countries including the UK and the US. Customers include military organisations, security and law enforcement agencies, as well as commercial aerospace markets. Countermeasures & Energetics accounted for most revenues in 2024 at 58%, with Sensors & Information, and including its electronic warfare focused Roke tech-unit, the balance.  

For some investors, the manufacture of defence equipment may be a deterrent on ethical grounds. A forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap. Government spending on defence has historically been easier to cut than say that of health or education, while Chemring’s previous production challenges in the US, caused by severe weather, should also not be forgotten. 

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More favourably, demand remains robust with the order book growing. Both product and geographical diversity exist, with its Roke unit bringing a specialist focus on technologic warfare. Investment expenditure continues to be made, while the dividend payment has increased consecutively for more than the last seven years, leaving the shares on a forecast yield of around 1.5%.

For now, and despite ongoing risks, the outlook for defence spending and a consensus analyst fair value estimate above 600p are likely to mean investors remain supportive. 

Positives: 

• Business type and geographical diversity
• Specialist tech-focused Roke business

Negatives:

• Defence is a volatile industry
• Exposure to currency movements

The average rating of stock market analysts:

Buy