Chemring's Retreat Despite Dividend Hike and Decade-High Orders

In a notable move, the defence company Chemring Group (LON:CHG) PLC has announced a 21% increase in its dividend after reporting annual sales and profits that exceeded expectations, driven by record levels of military orders. Despite this positive development, shares in the company dipped 2% to 321p in early trading, slightly down from their recent 18-month high of 338p.

Image Credit: Pexels

Financial Highlights: Annual Report

1. Impressive Sales and Profit Performance:

- Revenues: The company reported revenues of £472.6 million for the 12 months ending October, marking an impressive 18% increase from the previous year.

- Order Intake: Orders soared by 37%, reaching £756 million, contributing to an order book at its highest level in over a decade, standing at £922 million.

- Profit Before Tax: Underlying profit before tax saw a notable climb of 17%, reaching £67.9 million.

- Cash Generation: The company showcased robust cash generation, exceeding £75 million.

2. Dividend Hike and Share Performance:

- Dividend Increase: Chemring Group responded to its strong performance by increasing its dividend by 21%, with a proposed final dividend per share of 4.6p, resulting in a total dividend of 6.9p.

- Share Movement: Despite the positive financials, the company's shares experienced a 2% decline in early trading, currently at 321p.

3. Outlook and Future Prospects:

- Trading in Line with Plans: CEO Michael Ord reported that trading since the beginning of November has been "in-line with plans."

- Confident Performance: With 79% of expected revenue for the new year covered by the order book, the board remains confident in achieving the company's expectations for 2024 performance.

4. Broker and Analyst Insights:

- Positive Evaluation: Analysts at Peel Hunt noted that revenue and profit exceeded expectations, emphasizing the strengthening demand side across the group as they enter FY24E.

- Financial Flexibility: The company's net debt of £14.4 million provides ample financial flexibility, leaving room for strategic investments, including additional planned capital expenditure to enhance capacity in Energetics.

CEO's Perspective and Future Investments

CEO Michael Ord expressed optimism about the robust outlook for global defence markets, anticipating continued growth over the next decade. This positive trajectory provides the confidence needed to invest for the future, balancing near-term performance with long-term growth and value creation. The company aims to leverage its strong order book and financial position to navigate future challenges and capitalize on emerging opportunities.