Broker snap: Chemring 'back on the front foot', Investec upgrades

25th Nov 2013 09:19

Investec has upgraded its rating for defence group Chemring from 'hold' to 'buy', saying that despite potential risks the business is 'back on the front foot'.The firm's well-received pre-close trading update on Monday is in line with the revised guidance given in October, said analyst Chris Dyett.Revenue in the final quarter ended October 31st was approximately £185m, down 24% from the same period last year. Full-year revenues are expected to be down around 16% at £625m.Meanwhile, the order book at the end of the period was £702m, 8% lower than at the end of the previous financial year. However, Dyett pointed out it still provides visibility for over 60% of next year's revenues. "[The order book] is modestly higher than expected given certain revenues slipped over the period end," he said.As for the outlook, Dyett said that he expects to see similar end-market conditions next year, with another potential US shutdown in January looming."While end-markets remain extremely difficult, the company has identified further cost-saving opportunities. Also, the company has confirmed its intention to dispose of certain unidentified businesses."He said he is waiting for the full-year results on January 23rd to outline details of management's plans for each business to drive improved profit and cash.Investec's target price for Chemring remains 260p, based on a 10% discount to the average price-to-earnings ratio of the wider sector."High risk but potentially significant returns available," Dyett said.The stock was up 11.06% at 215.9p by 09:46 on Monday, up 21.5p on the day.BC