Why has the Chemring share price rocketed 12% to 7-year highs?

Investor appetite for UK shares has been quite flat in recent days. An unwelcome blend of Brexit uncertainty and soaring Covid-19 infection rates across the globe has stopped the stock market rally of early December in its tracks.

The FTSE 100 and FTSE 250 have flatlined in more recent days as UK share investors have taken a ‘wait and see’ approach with regards to Brexit talks. But not all London-listed companies have had the handbrake slapped on. Take Chemring Group (LSE: CHG) as an example.

The FTSE 250 defence giant has seen its share price soar 12% on Tuesday following the release of fresh financials. Chemring has recovered all of the ground lost in the stock market crash of early 2020. And it’s now 26% higher since the beginning of the year and riding high at seven-year peaks above 300p.

A robust UK share in uncertain times

Chemring has a history of beating estimates. It was at it again in midweek trading with the release of full-year results for the period ended October.

The business — which is chiefly known for its expertise in the realm of countermeasures — said revenues rocketed 20% year-on-year in the last financial period to £402.5m. This, in turn, drove underlying pre-tax profit a whopping 31% higher from fiscal 2019 levels, to £51.7m.

Chemring benefitted from not having to shutter its operations because of Covid-19 during the last year. It’s also seen customer orders continue to roll in and its order book of £436 as of October was up 6% year-on-year.

In particular, Chemring has enjoyed “strong growth” in orders and revenues at its Roke cyber security and IT division recently. And, as a consequence, this UK share has terrific visibility for financial 2021 (78% of expected group revenue this year is currently covered by the order book).

What Chemring said

So Chemring provided plenty for market makers to celebrate. But it wasn’t quite done yet. The FTSE 250 also declared the amount of net debt on its books had shrank 36% year on year to £48.2m.

This, along with its excellent profits performance last year and healthy order book, prompted Chemring to raise the full-year dividend. A total payout of 3.9p per share was up 8% from the previous year’s 3.6p.

No wonder Chemring chief executive Michael Ord sounded quite chipper in the release. He commented that the company is “well placed, with a robust strategy, market-leading positions across different geographies and sectors, and with products and services that are critical to our government and blue-chip customers. Chemring’s long-term prospects remain strong.”

City consensus suggests that Chemring’s annual earnings will decline 3% in fiscal 2021, though today’s bright update could see forecasts upgraded in the days ahead. Current estimates mean the defence play trades on a forward price-to-earnings (P/E) ratio of 20 times. A 1.5% dividend yield gives something for income investors to sink their teeth into too.