Chemring Group – mission critical business wins even more business, shares up again at 389p, will a Private Equity group take it out soon? If so 500p has to be the starting price.

02.04.2025

This morning Chemring Group (LON:CHG), the specialist manufacturing and technology business, has announced a new contract that is worth £251m.

Chemring’s Roke company has won a strategically important UK Ministry of Defence multi-year missile defence contract.

Its Romsey, Hampshire-based Roke business, which is a leading UK innovator in science and engineering, provides its services to customers across the areas of:

Communications, sensors and connectivity; Cyber security and digital resilience; Autonomy, AI and machine learning; Data science and analytics; as well Hardware, software and systems design.

The New STORM Contract

Known as Science & Technology Oriented Research & development in Missile defence (‘STORM’), this framework contract encompasses a broad spectrum of missile defence activities and capabilities.

Partnering with the UK Missile Defence Centre, Roke will lead a UK sovereign industry collaborative effort to provide security to the UK, and its allies, by countering current and future threats, including ballistic and hypersonic missiles.

Valued at £251m over six years, and commencing immediately, the STORM framework will see Roke enhance its role as a trusted partner to the UK MDC at the heart of the UK missile defence ecosystem at what is a pivotal moment for national defence and security.

As the overall Prime Contractor Roke will self-deliver elements of the contract and will also manage industry partners as they deliver the significant majority of contract value.

Roke's STORM work will inform critical UK defence decision-making and will play a key role in developing next-generation missile defence capabilities.

Management Comment

Chemring CEO Michael Ord stated that:

"We are delighted that Roke has been trusted to deliver STORM for the UK MDC.

In today's complex and changing security environment effective missile defence is crucial to protecting the UK's interests.

This contract recognises Roke's heritage in helping customers solve complex problems, and places Roke at the heart of the UK's missile defence research and development activities."

The Chemring Business

The group, which employs some 2,700 people worldwide, simply describes its operations as being a specialist manufacturing and technology business creating market-leading innovative solutions to meet its customers’ complex needs.

Using its extensive science and engineering expertise, it turns ideas into reality, designing and developing critical solutions that protect and safeguard in unpredictable environments in today’s increasingly unstable world.

It achieves that by innovating at every stage of the value chain, from research and development through to design, manufacture and in-service support, working closely with its customers to deliver products, services and solutions for mission-critical success.

And this is what really appeals to me – its customer base, being supported in more than fifty countries across the globe, spans national defence organisations, security and law enforcement agencies, as well as commercial markets such as space and transport.

Chemring designs, develops, and manufactures technology solutions for the defence, security, and safety industries.

Its products include sensors, countermeasures, and energetic systems such as to detect and disable threats like IEDs, unexploded ordnance, and chemical and biological threats; products to protect aircraft, ships, and land platforms from guided missile threats; pyrotechnics and munitions for use in the navy, army, and air force and energetic systems components for the space sector, including propellants, explosives, missile and ammunition components, and thrusters.

Its Operations

Its geographic Sales Breakdown for 2024 showed UK £229m, US £173m. Europe £86m, Asia Pacific £16.7m and the Rest of the World £5.9m.

Broadly its activities can be split under two main sectors – namely Countermeasures and Energetics (£298m sales in 2024), and Sensors and Information (£212m).

Its fields of service take in – operational mission cyber support services; active cyber defence; open-source intelligence; land electronic warfare systems; special bio-security and bio-surveillance sensors; air and naval countermeasures; specialised energetic materials; and precision engineered devices.

Countermeasures & Energetics

Chemring is the world leader in the design, development and manufacture of advanced expendable countermeasures for protecting air and sea platforms against the growing threat of guided missiles.

Its niche, world-class energetics portfolio provides high-reliability, single-use devices that perform critical functions for the space, aerospace, defence and industrial markets.

It is critical supplier of specialist materials including propellant and energetic materials that are used in a wide variety of applications in the defence and civil markets.

Sensors & Information

The Sensors & Information sector, including Chemring’s Roke business, continues to invest in technologies that safeguard and protect in an uncertain world, enabling clients to deliver competitive advantage, defend their people, assets and information, and defeat their adversaries.

Massive Group Order Book

With the new administration in the US pushing for significant increases in NATO defence spending and with EU member states recognising the critical need to scale up and co-ordinate defence production across Europe, the market opportunity for Chemring continues to grow.

Upon its AGM in late February, the group declared that its Order Book as at the end of January this year was a massive £1.35bn – so today’s announcement must boost that to over £1.6bn.

Within the Sensors & Information side of the Chemring Group, Roke has seen continued momentum for its defence services and products business with framework agreements and awards received in Q1.

Further wins in the area of Electronic Warfare including a contract with Egypt for the delivery of Roke's Perceive, Resolve and Locate EW systems, while it continues to see significant interest from European states and Japan, with further EW orders expected to be received in the coming months.

In the Countermeasures & Energetics sector, it continues to see increasing levels of demand for propellants and energetic materials.

In Norway, its energetic materials business, Chemring Nobel, signed a three-year supply agreement with SAAB Switzerland for the supply of HMX. This contract, valued at £36m, will see deliveries being made in 2028 - 2030.

In the UK, the Scottish-based business Chemring Energetics UK received an order valued at £23m for the delivery of critical components used in the Next Generation Light Anti‐Tank Weapon system.

The Equity

There are some 273m shares in issue.

The larger holders include Invesco Asset Management (7.81%), Old Mutual Investment Group (5.10%), Liontrust Portfolio Management (5.09%), Royal London Asset Management (5.00%), JO Hambro Capital Management (5.00%), Threadneedle Asset Management (4.97%), Jupiter Asset Management (4.97%), BlackRock Investment Management (4.95%), Schroder Investment Management (4.93%) and Aviva Investors Global Services (4.90%).

Broker’s Views

The group believes the current consensus of five analyst forecasts for FY25 are for:

· revenue of £540m,

· underlying operating profit of £75.9m, and

· underlying EPS of 20.0p.

Four out the five analysts call the group’s shares as a Buy, the other a Hold.

The average Target Price across that consensus is 478p, with the Lowest at 450p and the Highest at 500p a share.

My View

The group has already declared that it remains on track to achieve its ambition of increasing annual revenue to £1bn by 2030, while generating mid-teen margins in the medium-term.

It will be announcing its Interim end-April results on Tuesday 3rd June.

Its shares, now 389p, are expected to edge higher between now and then, so holders should stay firm with their positions, while new investors should take a very positive view of this group’s potential.

While also noting that a number of Private Equity houses have Chemring within their vision – so is a bid likely to ensue, if so 500p would be a good starting price.

I now set a new Target Price of 480p.

(Profile 20.06.19 @ 177p set a Target Price of 300p*)

(Profile 20.10.23 @ 278p set a Target Price of 350p*)

(Profile 02.04.25 @ 389p setting a Target Price of 480p)

Chemring countermeasures