Home » World » This stock’s share price has already risen 85pc – but there’s plenty more to come – World news

This stock’s share price has already risen 85pc – but there’s plenty more to come – World news

This stock’s share price has already risen 85pc – but there’s plenty more to come – World news

The prospects for many companies have deteriorated markedly since the start of the year. Significant threats such as high inflation, rising interest rates and war in Ukraine have combined to cause a weaker operating outlook across a wide range of industries.

However, not all sectors face a more difficult future than six months ago. The defence industry, for example, is poised to be reinvigorated by a new post-Cold War era in which the idea of spending more on the armed forces to provide greater security is widely accepted.

In Questor’s view, this will create more promising circumstances for Chemring. The FTSE 250 company designs, develops and manufactures countermeasures such as flares that protect military hardware from guided missiles. It also develops sensor technologies that detect a range of threats, including cyber, explosive and chemical.

Even before Russia’s invasion of Ukraine, the company was already growing quickly. Its interim results, published earlier this month, reported an 18pc rise in underlying pre-tax profits amid buoyant operating conditions.

As America, which accounts for just over half of the company’s sales, plans to increase its defence budget by 4.1pc to record levels next year, demand for Chemring’s products is likely to rise.

Although the impact of higher defence spending on its sales and profits is subject to time lags, as announcements typically precede tangible orders, the company’s long-term prospects are nevertheless increasingly upbeat.

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A solid performance in the first half of the year allowed it to further reduce net debt levels. They now stand at just £18.4m, including lease liabilities, which equates to a gearing ratio of less than 5pc. Declining leverage not only reduces the risks that face the company in an environment of rising interest rates, but provides scope for it to engage in mergers and acquisitions to further enhance its growth prospects.

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