(Sharecast News) – Shares in Chemring dropped 5% on Tuesday after the company said that the timing of a key contract would determine whether it hits its full-year targets; but broker Shore Capital recommended investors to use any weakness in the stock as an opportunity to pick up shares.
The aerospace, defence and security tech group said it is waiting for the US Department of Defense to approve certain countermeasure deliveries, equating to £25m, that have already been manufactured but haven’t yet been recognised on the top line.
“The US DoD is expected to grant approval subject to determination of the quality of raw material provided by a third-party supplier that is outside of the control of the group. The group is supporting all parties in resolving this matter,” Chemring said in a trading update.
Nevertheless, analyst Jamie Murray from Shore Capital said, after speaking to management, he’s satisfied it is “merely a timing issue”.
“If the US DoD does not approve the delivery before the year end, it is very likely to be approved the following year. Therefore given we value Chemring on a 18-24 month timeframe (i.e. on FY25F numbers), we do not expect this issue to impact our fair value,” Murray said.
In other news, the company is trading in line with expectations, and Shore Capital is keeping its forecasts in place for now as it reiterated its ‘buy’ rating and fair value estimate of 305p for the stock.
“The order book remains high, which underpins demand in future years with value creation likely to accelerate. We think the integrity of the growth story remains intact and therefore, in light of the Countermeasures issue, we would use any share price weakness as an excellent buying opportunity.”
Shares were down 4.8% at 290p by lunchtime.