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Chemring “fairly valued” following recent rally, says Berenberg

Published: 11:36 10 Jul 2019 BST

Fighter jet
Chemring's shares have risen 26% over the last three months, well over the 4% sector average

Shares in aerospace firm Chemring Group PLC (LON:CHG) are “fairly valued” following a recent rally according to analysts Berenberg, who on Wednesday downgraded the stock to ‘hold’ from ‘buy’.

In a note, the German bank said Chemring shares were the “best performing” in the pan-European aerospace and defence sector over the last three months, rising 26% versus the sector average of 4%.

READ: Chemring celebrates early insurance pay-out and two significant contract wins

Following the rise, Berenberg said the share price now reflected the Company’s fundamentals which justified the downgraded rating, however it also upped its target price to 190p from 180p, a 3.1% premium to Chemring’s close price on Tuesday.

“We continue to view Chemring as an improving equity story, with a new management team delivering a medium-to-long-term improvement strategy”, analysts said, adding that the firm’s earnings quality was being “enhanced” by transitions from commodity products towards higher-margin and “more predictable” revenue streams.

However, the bank did also voiced caution around some near-term operational risks, particularly a phase restart of its UK Countermeasures site following an explosion in last August as well as an ongoing investigation by the UK’s Serious Fraud Office into two small historical contracts, a legal dispute between a subsidiary and the US Army and a potential liability relating to tax exemption from the UK’s Controlled Foreign Company regime, both of which could weigh on sentiment.

In late-morning trading on Wednesday, Chemring shares were steady at 184.2p.

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