Chemring says profits will be in line, as slower UK orders offsets defence demand

Chemring Group anticipates full-year profits to align with analyst forecasts, buoyed by strong demand in its Energetics segment for defence technologies, which effectively offset slower UK government order placements in its Sensors & Information division. The company reported a substantial increase in its order book to £1.3 billion and projects an improved adjusted operating margin of 14.7%, with adjusted EPS benefiting from lower finance costs. This performance was underpinned by significant contract wins, including a $65 million US framework agreement and a £24 million UK NLAW rocket motor deal, alongside strategic moves like the Landguard Group acquisition and a review of Alloy Surfaces as a discontinued operation.

Analysis

Chemring Group anticipates full-year profits for FY2025 to align with analyst expectations, driven by robust demand in its Energetics segment. This segment's strong performance in defence technologies, including propellants and energetic materials, effectively mitigated slower order placements within the Sensors & Information division attributed to UK government delays. The company's order book significantly expanded to £1.3 billion from £1.0 billion year-over-year, supported by £781 million in new orders.

The financial outlook is further bolstered by a projected improvement in adjusted operating margin to approximately 14.7% from 14.2% last year, alongside expected benefits to adjusted earnings per share from lower finance costs. Significant contract wins underpin this growth, including a five-year, $65 million US framework agreement and a £24 million UK contract for NLAW anti-tank weapon rocket motors. Additional notable deals include a US$35 million Australian government contract and a £15 million NATO order for the Countermeasures division.

Within the Sensors & Information business, Roke secured over £40 million in National Security contract renewals and a £20 million British Army contract for Project ZODIAC, despite overall segment order delays. Strategically, the Landguard Group acquisition, completed in August, will be integrated into Roke, while a strategic review of Alloy Surfaces is underway, with the unit slated for reporting as a discontinued operation. This indicates a focus on portfolio optimization and core defence capabilities.

Key Decisions for Investors

• Investors should recognize Chemring's strong defence sector demand and improved financial guidance, including margin expansion and order book growth, as positive indicators for continued performance.
• The strategic integration of Landguard Group and the review of Alloy Surfaces signal proactive portfolio management aimed at optimizing core defence capabilities.
• Prudent investors should monitor the resolution of UK government order delays affecting the Sensors & Information segment, as this could influence future growth trajectories.