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Chemring shares lose a third of their value after profit warning

Discussion in 'Market News' started by Lily, Oct 27, 2015.

  1. Lily

    Lily Forum Member

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    Company blames delay in Middle East contract and unveils £90m rights issue

    Defence group Chemring has been blown off course by a delayed contract from the Middle East.

    The company, which specialises in flares, ejector seats for fighter planes, detection systems and explosives, has seen its shares slump 34% or 77.5p to 149p after a hefty profit warning and news of a £90m fundraising.

    The group has made good progress in the procurement and qualification of product relating to the major 40mm contract announced on 14 September, for which revenue was included in the group’s previous 2015 expectations.

    However, despite every effort, we are still awaiting the receipt of necessary permits and export approvals associated with this contract.

    The main issue for us is the balance sheet as the company has warned that discussions will be held with debt providers to negotiate amendments to the operation of covenants and the waiver of any event of default that may result from the 40mm contract delay. Our best guess at this stage is that the shares will fall to enterprise value of around one times 2016 sales of £450m, equivalent to 140p. We move our recommendation from buy to sell.

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