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On Thursday, Jefferies analyst David Farrell increased the price target on Chemring Group Plc. (LON:CHG:LN) (OTC: CMGMY) to GBP5.00 from GBP4.50, while reiterating a Buy rating on the stock. Farrell highlighted the company’s strong position in the European defense market, where it generated 17% of its FY24 group revenue, primarily through its Countermeasures & Energetics division.
The analyst pointed out that with the European Union’s heightened focus on re-armament, Chemring’s investment in expanding energetics capacity is likely to drive a significant medium-term earnings per share (EPS) compound annual growth rate (CAGR). This growth potential, according to Farrell, has not yet been fully recognized by the market.
Chemring, which supplies munitions to both European and U.S. manufacturers, is poised to benefit from increased defense orders across the Atlantic. The company has secured several long-term agreements, including a significant €231 million five-year contract signed in November 2024 with Diehl Defence. This contract is for the supply of MCX material for 155mm munitions to the German government.
Farrell also mentioned the expectation of additional contracts and potential extra European funding, referencing the £89 million granted in March 2024 to a Chemring subsidiary, ASAP / Norway, for capacity expansion. Beyond its energetics business, Chemring is also anticipated to experience increased demand for its Roke division’s Electronic Warfare products. Roke has a pipeline exceeding €300 million over five years and has already made sales to NATO members such as Sweden, Lithuania, and Latvia.
The analyst’s comments underscore Chemring’s strategic positioning in the defense sector and its potential for growth amidst rising European defense spending.
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