June 21, 2018 / 6:25 AM / a year ago

Chemring targets $2 billion U.S. contracts as defense lifts-off

(Reuters) - Defense equipment maker Chemring Group Plc (CHG.L) is targeting contracts worth around $2 billion in the United States after nearly five years of relatively low demand, its chief executive said.

The British contractor, which makes flares, equipment to detect improvised explosive devices and mechanisms used in ejection seats, is looking to benefit from increased spending by the United States under President Donald Trump.

Shares in Chemring were up 1.6 percent at 1243 GMT on Thursday after earlier hitting a more than 4-year high as it reported its first-half operating profit rose 5.2 percent to 18.1 million pounds ($24 million), beating some analyst estimates.

“The market is starting to turn. For the last 4 or 5 years, it’s been a fairly lean defense market,” Chief Executive Michael Flowers, who is set to retire later this year, told Reuters.

The U.S. Senate passed a $716 billion defense policy bill this week, while Middle Eastern markets are “picking up a little bit”, partly helped by higher oil prices, he said in a telephone interview.

The U.S. alone provided opportunities across biological warfare, chemical detection, counter improvised explosive devices over the next ten years, although there would be fierce competition for the contracts, Flowers added.

“Particularly in the chemicals area, which is the largest, they are competitive. We anticipate getting a good slice of it but not all of it,” he said.

Chemring’s outlook echoed that of larger rival BAE Systems (BAES.L), which in March said there were good prospects for adding to its order backlog later this year.

Chemring, which has a 112-year history, also stuck to its forecast for the full year after its first-half revenue for the six months to the end of April fell 8.1 percent to 229.3 million pounds, but beat Investec’s estimate of 223 million pounds.

Investec raised its target price by 10 pence to 250 pence following the results from Chemring, which supplies products to more than 50 countries.

The company said its current orders totaled 442 million pounds, compared with 478 million pounds in fiscal year 2017, hit in part by a weaker U.S. dollar.

Reporting by Muvija M in Bengaluru; Editing by Amrutha Gayathri and Alexander Smith

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