Berenberg ups target price on Chemring

Analysts at Berenberg hiked their target price on aerospace and defence firm Chemring from 200p to 235p on Wednesday, stating the group's recent full-year results had provided further evidence of the "improving quality and momentum" of the business.

Berenberg said the strong growth in underlying revenues and profits, as well as solid operating cash generation, bode well for the firm's medium-term outlook - supported by a strong order book and upside from US programs of record.

The German bank highlighted that the "strong financial performance" had "rightly" driven a re-rating of shares, which were up by 22% over the past three months and outperforming the pan-European defence sector average of 6%.

"Shares now trade on 17x 2021 P/E, which is a 20% premium to the pan-European defence sector. We view this valuation as relatively full, preventing us from turning buyers, but would use any pullback as an opportunity," said Berenberg, which kept its 'hold' rating on Chemring unchanged.

Berenberg also trimmed its earnings estimates by 1-6% over its forecast period to reflect updated sales forecasts and a 40-50 basis point cut to operating margin due to mix and higher central costs.

The analysts' cash flow estimates were also lower due to higher capex given some underspending in 2019, which together with the recognition of £7m of finance lease liabilities related to IFRS 16 meant its net debt estimate rose to £83m in 2020 versus its previous estimates of £67m-76m for 2019.