Panmure sees Chemring benefit as military action escalates in Middle East

27th Aug 2014 10:28

Panmure Gordon analyst Sanjay Jha issued a bullish note on Chemring, as the US officially ended its "humanitarian no-boots-on the-ground airstrikes" stance and Nato deployed forces in Eastern Europe.The US is now planning military action in Syria and northern Iraq, possibly with the help of its allies, and with possible extensions to Libya, where Egypt and the UAE have reportedly launched airstrikes against Islamist-allied militias battling for control of Tripoli.On Tuesday, Nato's secretary general Anders Fogh Rasmussen, said that forces will be deployed to new bases in eastern Europe for the first time to counter any threat from Russia."Europe's defence spending, which has been left behind in the global arms race, looks set to bounce," says Jha. "Poland, for example, is moving forward its purchase of 30 attack helicopters originally planned for 2016."He argues that airstrikes alone will not resolve the issues and says "it is inevitable" that ground forces will be deployed, if only to help train local allies. As a supplier of short cycle war-related products such as countermeasures, pyrotechnics and devices to help counter improvised explosive devices, Chemring "remains the most geared UK play to conflicts". Growth is obviously dependent on the scope and length of the campaigns.Until recently, consensus estimates have so far predicted earnings per share will bottom out in full year 2014 and grow by 5% and 10% in 2015 and 2016, respectively, largely reflecting operational efficiencies. However, Jha believes that top line growth will be stronger than market expectations as conflicts spread, resulting in earnings per share growth of 30% and 50% in in 2015 and 2016, respectively, and he slaps a 'buy' on the shares. OH