Chemring PLC (LON:CHG) got a lift on Monday after Barclays upgraded its rating for the FTSE 250-listed firm to 'overweight' from 'equal-weight', pointing out that the stock is the purest-play Cyber exposure in its UK defence coverage:
In a note to clients, the Barclays analysts pointed out that its Roke Manor unit currently represents 18% of Chemring's full-year 2020 revenues, 80% of which are Cyber Security versus an EU defence peer average of less than 10%, providing high-end active Cyber through Cryptography, Information Warfare and Consultancy.
They said: "In our view, the business is well-positioned competitively and it generates market-leading margins (~25%, vs peers <15%)."
The analysts added: "We believe CHG is the most attractive way to play the Cyber Security growth theme in the UK. We shift our valuation methodology to 2023E SOTP analysis, which implies Roke's EV is ~£400m (~50% mkt cap) utilising premium multiples against the backdrop of incremental UK defence and National Security spend, to continue its historic growth trajectory (19% 2018-2021E rev CAGR)."
The analysts raised their price target for Chemring to 380p from 250p, with the shares currently trading at 308p, up 2.7% on Friday's closing price.