Chemring Share Discussion Threads

[kiwihope] 14/10/2013 16:48

phil...

There is more than one thing at work here.

Obviously the profit-warning, which is made worse by management saying that 2014 result will probably be worse than 2013. That's a fairly long-term warning.

Secondly the US debt ceiling and shutdown mess. With lots of US earnings, CHG would always be hit by this.

Thirdly the cuts to US defence spending; again CHG is being hit hard by this.

And finally the self-inflicted wounds due to too much fat and loss of focus built up in the mid to late 2000s. Life was too easy then and they're now paying for it.

Don't focus too much on the share price. That's not a reason to sell.

[philanderer] 14/10/2013 16:31

You have to go back to june 2006 for a shareprice of around 210p .

I`m basically an optimist but this is starting to look a bit on the alarming side.

[warranty] 14/10/2013 16:27

On a long term view this has to be cracking value at this level, CHG is a serious company with blue chip customers but the way things are it may get even cheaper yet?

[salpara111] 14/10/2013 12:25

Well, the technical support line has gone so I have no idea where this might settle.
I took my spread bet profit and went long on Moneysupermarket yesterday as it was sitting at a one year low, looking for a return to the 180 region there for a 37 point gain, backed by a decent divi so downside risk limited.

[kiwihope] 14/10/2013 10:03

Something gone wrong with my posts - not getting all of it!

[kiwihope] 14/10/2013 10:03

There's no doubt that the convenants are a worry, but I don't think they are an immediate one. Their next testing date is this month, presumably on full year figures. If there was a chance they would be breached I would have expected some statement in the trading release just made. It is after all price sensitive information, and they must know by now with only 2-weeks to go to year end.

Of the two covenants the revolving credit facility looks the tightest. For October net debt to EBITDA has to be

[kiwihope] 14/10/2013 09:50

There's no doubt that the convenants are a worry, but I don't think they are an immediate one. Their next testing date is this month, presumably on full year figures. If there was a chance they would be breached I would have expected some statement in the trading release just made. It is after all price sensitive information, and they must know by now with only 2-weeks to go to year end.

Of the two covenants the revolving credit facility looks the tightest. For October net debt to EBITDA has to be

[philanderer] 14/10/2013 09:16

Morning kiwi , it`s the bank covenants that are the huge worry now. I doubt they`d get away with a rights issue unless it was incredibly discounted and that would really annihilate the shareprice.

[kiwihope] 14/10/2013 09:09

These things always go in cycles. Being into American defence is obviously not a good thing at the moment, and for a while to come yet. But a year or so ago civil construction wasn't any good either. Before than property and housebuilders. But look at PSN and LAND and CLLN now. I believe CHG is a basically solid company with some problems that have only recently come to light, because it was in a previously booming sector which masked its shortcomings. The defence market is much tougher now and CHG had grown fat and lost its focus. These things take a while to fix. If I'm right then with good management, and maybe a bit of luck on the economic side, in a couple of years time the outlook might be looking better. On the other hand, if I'm wrong and CHG was never a 'good' company, then it will never recover. That is the risk...

[philanderer] 14/10/2013 08:39

Liberum retaining 'hold' but whacking it`s target down from 270p to 205p

[philanderer] 12/10/2013 00:44

kiwi, a bit optimistic I know , but I was referring to this from Friday`s RNS.. clutching at straws for it to contain something a bit more positive than expected ;-)


"..At the interim results presentation in June, Chemring announced that it was initiating a comprehensive planning process which would give a better understanding of both the markets in which we operate and our business strategy for the next three years. This is being prepared in conjunction with a detailed budgeting exercise for FY14. Early indications, given the continuing difficult market conditions, are that FY14 performance is likely to be less than the anticipated current year outturn. We will outline the initial findings of this process in a post close trading statement, which is expected to be released in November 2013"

[jonntara] 11/10/2013 22:49

Kiwihope. I agree with your method. I am not holding yet, but may start to dip my toe in on Monday and if it falls further may top up again.

[kiwihope] 11/10/2013 16:58

phil ... you mean 2014!

[philanderer] 11/10/2013 16:44

Can`t see where the upside comes from before the November trading statement, but will keep a close watch.

Luck to all.

[hvs] 11/10/2013 15:53

Get ready for another nastier warning.

Them anal ysts say HOLD they would after they said BUY at £3.40 and above.

[kiwihope] 11/10/2013 15:25

We will have to agree to differ Salpara...

I don't really care which way the share price is moving. I just try and buy low and sell high. I've never been any good at timing. I've bought before when the share price appears to have stabilised and started rising and I've thought all the bad news is out, only for it to fall again! So I now only look at the absolute prices and relevant news/data and buy if I think it's under-priced. If it falls another 15% or so I have another look and may buy more or sell the lot, depending on my assessment at the time.

[salpara111] 11/10/2013 15:12

It is always better to miss the first 5-10% of any rise and know that you are buying into a rising stock than to try and pick the turning point.
There are still uncertainties concerning the debt level/covenants here and if the share price were to drift back a bit more then it could well lose its FTSE 250 place which would put further selling pressure on if the tracker funds thought it was going out.
All in all the risks still seem to be to the down side but I fully accept that there may be a bit of a bounce from today's low.

[kiwihope] 11/10/2013 14:51

Trouble is, if you wait until things look to be improving the share price will already be on the way up. I have ridden this up twice now and sold, first when the aborted takeover bid was announced and a couple of months ago when it hit 300p.

I reckon it was overvalued a bit at 300p so I top-sliced. I reckon it is undervalued now - forecasts are still for around 20p eps which is a PE of around 11. Considering the scope for improvement in trading, I don't think that is too rich. OK it may take a while, but I've found from experience it is usually better to buy the first time you think it's cheap, than wait and try and time an entry point.

I'm sitting on a lot of cash having sold 50% of my holdings as the market's risen this year, so I have it to invest, with a good amount left over for other opportunities.

[salpara111] 11/10/2013 14:35

Well, no dead kitty bounce yet!
Still think that it may find support around the current level but don't see the point in taking a long stake now, better to wait and see what the next few months bring Vis a Vis convenant testing etc.
I am keeping them on my low level watch list so will monitor from a distance going forward.

[kiwihope] 11/10/2013 12:49

Let's just be patient and see in 1-2 years time.

[philanderer] 11/10/2013 12:15

FT Alphaville .not good at all .. "covenants looking tight"



Chemring Group PLC (CHG:LSE): Last: 223.30, down 61.1 (-21.48%), High: 246.10, Low: 216.70, Volume: 2.82m

BE

It's a multi-parter of a warning.



PM

Grim details here



BE

And do remember it's not the first.



BE

So we're blaming US shutdown ......



BE

And forex, and Middle East flux



BE

But the big surprise is that Kilgore's still causing problems.



PM

Ah, is that it



BE

That's their flare factory.



BE

I seem to remember a rumour went around that one of their earlier profit warnings was really because it was raining more than usual on their flare testing ground.



BE

So they were, literally, damp squibs.



BE

Anyway, we're looking again at whether Chemring's going to breach covenants.



BE

Let me cut to Barclays for some context.



BE


We are clearly disappointed by the statement from Chemring this morning. The statement highlights a number of issues, which together are expected to reduce consensus EBITA by £8m for this year (yr end October) – equating to a 10% downgrade to the current Bloomberg consensus and early guidance for FY14E (Bloomberg EBITA consensus £86m), which would be below FY13E – so the downgrade will be at least 15%. We suspect it will be 15-25%. If nothing else this highlights just how low the visibility in the business is. We had hoped the new management team had worked towards trying to resolve some of these issues, but this shows the tough task in front of them.



BE


Management has offered no breakdown as to how the £8m impact to EBITA splits across the various issues.



BE


This will of course open up debate on the balance sheet. The indicated £8m reduction to operating profit in FY13E would reduce Bloomberg consensus EBITDA to £93.7m (our recently downgraded EBITDA for FY13E is £99m). The current Bloomberg consensus net debt for FY13E is £232m – clearly the £8m reduction to EBITA expectations will impact this and the company highlights issues with cash receipts in the Middle East as well – therefore consensus net debt could increase by 5% or more. This would suggest net debt/EBITDA at the end of FY13E could approach 2.6-2.8x.



BE


Chemring announced with its interim results that it had renegotiated its debt covenants (which are tested quarterly) earlier this year to:

· Revolving credit facility (£230m expires Apr 2015): net debt/EBITDA 3.5x (Apr & Jul 13), 3.25x (Oct 13 & Jan 14).

· Private placement ($405m + £12.5m, expires 2016-19): gross debt/EBITDA 3.5x (Apr13-Jan 14).

These revert to 3.0x beyond this.

The changes to earnings indicated in today's statement suggest that Bloomberg consensus FY14E EPS could fall to c. 19-21p (15-30% downgrade). Which would put the shares on a PER 13.5-15.0x and EV/EBITDA of 8.5x-9.5x.



BE

So, looking tight. Uncomfortably.



BE

Cazenove's thrown in the towel.



BE


Chemring's new management team is focused on
delivering on improvements to the business, and we see the opportunity for
more to come in time, but we believe investors will need to be patient as
the legacy issues will take time to resolve and the expected improvement
in financial performance is likely to be incremental rather than immediate.
The reduction in our price target means that it is below the last close and
we downgrade to Neutral from Overweight.

[salpara111] 11/10/2013 12:13

If you are a trader there could well be a technical bounce from 220 but I have a couple of other trades in mind which I feel are less risky so I am moving on.
My target had always bee the long term support line at 220 it just took a while longer to get there than I had anticipated!
I much prefer to take long positions but I just felt so strongly that this one was overvalued that I took a short position. I don't know how much the management is to blame but what was clear to see was that with the wind down in the Afghan conflict there was going to be less need for the type of consumables that CHG are involved in.

[philanderer] 11/10/2013 12:09

JP Morgan updated ..... retains 'neutral' drops target from 310p to 260p


hxxp://www.ig.com/content/dam/publicsites/igcom/shared/Broker%20ratings/ukratings_111013.pdf

[philanderer] 11/10/2013 12:04

Top trading Salpara.

Must say I`m tempted at 220p