Berenberg downgrades 'fairly valued' Chemring to 'hold'
Analysts at Berenberg downgraded "fairly valued" aerospace and defence firm Chemring's shares from 'buy' to 'hold' on Wednesday following a solid run by the stock over the last quarter.
With Chemring having been the best performing stock in the pan-European aerospace and defence sector over the last three months, up 26% versus the sector average of just 4%, Berenberg noted that its shares now trade on 14.3x 2020 consensus earnings, in line with the company's two-year average and on a roughly 10% premium to the rest of the sector.
The German bank said Chemring's rally had been driven by the continued execution of the new management team's improvement strategy, as well as the ongoing phased restart of its UK countermeasures unit following an explosion at the site last August.
"We believe this reflects the company's fundamentals and, therefore, view the shares as fairly valued," said Berenberg.
Berenberg, which did increase its price target on Chemring from 180p to 190p, also increased its EPS estimates for the company by 5% in 2019 and 2% in both 2020 and 2021, due to lower-than-expected interest expenses, and made only "minor housekeeping changes" to its revenue and operating profit assumptions.
"We continue to view Chemring as an improving equity story, with a new management team delivering a medium-to-long-term improvement strategy," concluded the analysts.