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Tech-based FTSE 250 defence agency Chemring (LSE: CHG) is down 11% from its 6 June 12-month traded excessive of £5.39.
This might point out that the underlying enterprise is value lower than it was earlier than. Or it may sign {that a} cut price is available.
I took a deep dive into the corporate and ran the important thing numbers to establish which is true right here.
The enterprise
Chemring is a frontrunner in Sensors & Info, and Countermeasures & Energetics merchandise for the defence sector. These are utilized in chemical and organic menace detection, digital warfare, and the detection of improvised explosive units, amongst others.
It provides 85% of NATO’s air fleets and 60% of its naval fleets with key defence tools. The agency can also be a precision know-how provider to SpaceX and NASA. And it’s on the UK Ministry of Defence’s ‘trusted provider’ checklist for a variety of cyber defence and different techniques.
In June, it purchased Landguard Programs, which designs and manufactures superior radio tools targeted on intelligence gathering, surveillance, goal acquisition, and reconnaissance. Chemring expects this deal to spice up earnings by the top of October 2026, though it has not specified by how a lot.
Latest outcomes
H1 2025’s outcomes noticed document order consumption rise 42% yr on yr to £488m. This swelled the order e-book by 25% to £1.304bn, the best in Chemring’s historical past.
Underlying revenue elevated 8% to £27.1m, and underlying revenue margin rose to 11.6% from 11.2%. Income climbed 5% to £234.3m over the half, pushed by 20.4% progress in Countermeasures & Energetics.
A threat right here is any main fault in one in every of its key merchandise, which could possibly be expensive to repair and will harm its fame.
Nevertheless, Chemring believes it’s in a superb place to extend income to £1bn by 2030, from £510m final yr. It bases this on “rising geopolitical uncertainty leading to elevated defence expenditure, significantly throughout NATO.”
Certainly, June’s 2025 NATO Summit noticed members decide to spending 5% of their gross home product on defence yearly. This compares to a median of two% final yr.
So are the shares a cut price?
The discounted money circulate (DCF) technique pinpoints the place any inventory value ought to commerce, primarily based on money circulate forecasts for the underlying enterprise.
As a standalone valuation, it is usually unaffected by under- or overvaluations within the sector by which a agency operates.
The DCF for Chemring reveals its shares are 31% undervalued at their present value of £5.33.
Due to this fact, their truthful worth is £7.72 – so Chemring is at the moment in cut price territory.
Will I purchase the inventory?
I have already got holdings in two defence shares – BAE Programs and Rolls-Royce – so one other one would unbalance my portfolio.
Nevertheless, I feel it’s effectively value contemplating for traders whose portfolios it fits.
The buoyant defence sector, sturdy latest outcomes, and undervalued share value are main positives for Chemring.
Maybe much more compelling to me is that analysts forecast its earnings will enhance 15.9% a yr to the top of 2027. And it’s finally progress right here that powers any agency’s share value larger over time.
