Image source: Getty Images
Tech-based FTSE 250 defence firm Chemring (LSE: CHG) is down 11% from its 6 June 12-month traded high of £5.39.
This could indicate that the underlying business is worth less than it was before. Or it could signal that a bargain is to be had.
I took a deep dive into the company and ran the key numbers to ascertain which is true here.
The business
Chemring is a leader in Sensors & Information, and Countermeasures & Energetics products for the defence sector. These are used in chemical and biological threat detection, electronic warfare, and the detection of improvised explosive devices, among others.
It supplies 85% of NATO’s air fleets and 60% of its naval fleets with key defence equipment. The firm is also a precision technology supplier to SpaceX and NASA. And it is on the UK Ministry of Defence’s ‘trusted supplier’ list for a range of cyber defence and other systems.
In June, it bought Landguard Systems, which designs and manufactures advanced radio equipment focused on intelligence gathering, surveillance, target acquisition, and reconnaissance. Chemring expects this deal to boost earnings by the end of October 2026, although it has not specified by how much.
Recent results
H1 2025’s results saw record order intake rise 42% year on year to £488m. This swelled the order book by 25% to £1.304bn, the highest in Chemring’s history.
Underlying profit increased 8% to £27.1m, and underlying profit margin rose to 11.6% from 11.2%. Revenue climbed 5% to £234.3m over the half, driven by 20.4% growth in Countermeasures & Energetics.
A risk here is any major fault in one of its key products, which could be costly to fix and could damage its reputation.
However, Chemring believes it is in a good position to increase revenue to £1bn by 2030, from £510m last year. It bases this on “growing geopolitical uncertainty resulting in increased defence expenditure, particularly across NATO.”
Indeed, June’s 2025 NATO Summit saw members commit to spending 5% of their gross domestic product on defence every year. This compares to an average of 2% last year.
So are the shares a bargain?
The discounted cash flow (DCF) method pinpoints where any stock price should trade, based on cash flow forecasts for the underlying business.
As a standalone valuation, it is also unaffected by under- or overvaluations in the sector in which a firm operates.
The DCF for Chemring shows its shares are 31% undervalued at their current price of £5.33.
Therefore, their fair value is £7.72 – so Chemring is currently in bargain territory.
Will I buy the stock?
I already have holdings in two defence stocks – BAE Systems and Rolls-Royce – so another one would unbalance my portfolio.
However, I think it is well worth considering for investors whose portfolios it suits.
The buoyant defence sector, strong recent results, and undervalued share price are major positives for Chemring.
Perhaps even more compelling to me is that analysts forecast its earnings will increase 15.9% a year to the end of 2027. And it is ultimately growth here that powers any firm’s share price higher over time.
