Forti ed by the ight to safety
British defence group Chemring’s o ering ranges from chemical detection to missile defence
TDr Michael Tubbs he world is becoming a more dangerous place due to the activities of China, Iran, North Korea and Russia, with fighting in Ukraine and the Middle East. Western countries realise that they must increase defence spending to deter aggressors and this is benefiting defence companies. Large defence firms’ share prices have risen substantially in the past few years. But there are several smaller, specialist defence firms that offer better value, particularly those that are winning new orders.
One such firm is Britain’s Chemring (LSE: CHG), whose Norwegian subsidiary, Chemring Nobel, last month won a £57m contract from the European Commission as part of its ammunition-production programme, which is helping deliver ammunition and missiles to Ukraine, and refilling member states’ stocks. The Norwegian government has given Chemring £32m to increase production capacity at Chemring Nobel, which makes explosive materials such as those used in artillery shells. Large numbers of shells are, of course, being used in Ukraine. And 2024 sees the start of deliveries for a £43m UK Ministry of Defence contract for critical components for the UK Next-generation Light Anti-tank Weapon (NLAW) system. Deliveries will continue into 2026.
A bursting order book
Chemring’s AGM update said that the order book stood at £991m on 30 January 2024, so with the new Norwegian awards of £89m, the total is now £1.08bn. That is more than twice the company’s 2023 turnover of £473m. And order intake in the year to 31 October 2023 was £756m (the equivalent of 160% of sales), with growth in orders in both divisions of the company.
Chemring has two divisions: sensors and information (S&I, 40% of revenue) and countermeasures and energetics (C&E, 60% of revenue). S&I covers chemical and biological detection, improvised explosive device (IED) detection, electronic warfare (EW) and data science. C&E comprises advanced infra-red, radio frequency (RF) and naval countermeasures; space launch, missile and aircraft components; explosives and propellants, and a range of other devices. S&I protects land forces against IEDs and electronic warfare, and provides active cyber defence. The C&E arm’s countermeasures protect air and sea platforms against a range of different missile attacks – such as from missiles using infra-red homing devices.
Chemring operates in four markets (the UK, the US, Australia and Norway) and exports products to more than 50 countries. In 2023 43% of sales were to the
UK, 38% to the US, 15% to Europe and 4% to Asia Pacific. Chemring Roke, the electronic warfare, active cyber defence and data science subsidiary, accounted for £183m of 2023’s £756m order intake, up by 9% from 2022; sales have doubled in five years. Roke USA has put on successful demonstrations to the US Department of Defence of Roke UK’s man-portable mission-analysis software. The pitches have generated interest in the US in a modified system that meets the country’s requirements. Roke US has already established a presence in the US, providing research and development services focused on advanced electronic-warfare algorithms.
Chemring’s Chicago facility (which does engineering, manufacturing and testing for the energetics business) has a record order book of $165m, with more orders received in the final month of 2023 than in any previous year. Given the large size of the US defence market, Chemring’s emphasis on growing its US subsidiaries is a sensible strategic move.
Chemring is also investing heavily in its sites in the US, Norway and Scotland, which will involve £209m of capital expenditure over three years, which it says will add some £85m of revenue per year – and about one quarter of this sum to operating profit from 2026-2027 onwards.