Chemring shares slip as results arrive in line, capex to be hiked

Chemring shares slipped 1% to 475.5p after the countermeasures maker reported FY to 31 Oct 2025 revenue up 2% to £497.5m, underlying operating profit +6% to £73.5m (margin 14.8% vs 14.3%), profit before tax up 31% to £67.7m, cash conversion 114% and net debt of £89m reflecting ongoing investment. Order intake rose 21% to £781.4m, delivering a record £1.345bn order book and 76% of expected 2026 revenue already secured; Countermeasures & Energetics showed firm momentum while Sensors & Information faced short-term UK spending delays. Management left 2026 operating expectations unchanged but flagged higher capital expenditure and increased finance charges as it scales investment (notably in Norway), underscoring strong demand visibility amid elevated defence spending but near-term cost and cash pressure from planned capex.

Analysis

Chemring reported revenue of £497.5m for the year to 31 October 2025, a 2% increase, with underlying operating profit up 6% to £73.5m and margins rising to 14.8% from 14.3%. Profit before tax jumped 31% to £67.7m and cash conversion improved to 114%, yet shares slipped 1% to 475.5p despite results being broadly in line with expectations. Net debt ended at £89m, which management attributes to ongoing investment across the group.

Order intake rose 21% to £781.4m, delivering a record order book of £1.345bn and securing roughly 76% of expected 2026 revenue, providing strong near-term revenue visibility. Operationally the Countermeasures & Energetics franchise shows firm momentum while Sensors & Information faces short-term delays tied to UK government spending timing.

Management maintained 2026 operating expectations but flagged higher capital expenditure and increased finance charges related to investment in Norway, creating potential near-term cash and margin pressure despite a favourable demand backdrop from increased NATO defence spending. The primary trade-off for investors is durable demand and order visibility versus execution and financing risk from elevated capex.

Key Decisions for Investors

• Given the 21% jump in order intake, record £1.345bn order book and 76% of 2026 revenue secured, investors should consider holding or selectively adding exposure where conviction in sustained defence spending exists
• Monitor capex guidance and finance-charge disclosures closely—particularly updates on the Norway investment—and be prepared to reassess if net debt or cash-conversion trends worsen from current reported levels
• If portfolio risk tolerance is limited, consider hedging or trimming positions ahead of potential margin pressure from higher financing costs or further delays in the Sensors & Information segment
• Use upcoming trading updates, contract awards in Sensors & Information and quarterly capex cadence as explicit decision points for rebalancing positions