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.
In an unscheduled release, it blamed a delay to a 40mm ammunition contract worth £100m from the Middle East.
As a result it said there was “a realistic prospect” that full year operating profit could be reduced by around £16m to £33m. Chief executive Michael Flowers said:
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 company has been struggling with delays to contracts and cuts in defence spending in some of its key markets.
It had net debt of £149m at the end of April according to Thomson Reuters, and it has now announced an underwritten rights issue of up to £90m in the first quarter of 2016.
It will also hold talks with debt providers “to negotiate amendments to the operation of covenants and the waiver of any event of default that my result from the 40mm contract delay.”
Panmure Gordon analyst Sanjay Jha called the announcement a “horrible profit warning” and said:
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.
