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Chemring (CHG LN) is experiencing a surge in orders amid an era of rearmament and geopolitical tensions. A company once synonymous with decoy flares and pyrotechnics, it now has a record order book exceeding £1 billion, with demand so robust that 76% of its expected FY2026 revenue was secured by the end of FY2025 (October 31st). Management reports a “robust” defense market outlook, with strong growth projected for at least the next decade. Such confident tones might recall prior buildups, the surges of the 1980s and early 2000s, when defense firms similarly reveled in abundant orders. Yet CHG leadership, tempered by the company’s own history, remains measured.
Throughout 2025, management adjusted its view of 2026 not through overt upgrades, but through a series of controlled affirmations. Order cover for the forward year steadily increased, yet formal guidance remained carefully framed, as if the backlog were something to be managed rather than celebrated. Rising contractual certainty, paired with restrained language, suggests a leadership team less interested in narrating a boom than in avoiding the familiar errors that follow such a boom.
Within this context, CHG appears less like a beneficiary of transient fortune and more like a company that the market has misread. Valuation today still reflects the memory of volatility rather than the evidence of adaptation, pricing the firm as though demand were episodic, margins fragile, and capital discipline provisional. Yet the emerging structure of the business suggests something more durable: a set of narrow, mission-critical niches, increasingly governed by multi-year contracts, co-funded capacity expansion, and a balance sheet positioned to absorb error rather than amplify it.
If management succeeds in converting today’s exceptional order flow into repeatable cash generation, the result may be a form of compounding unfamiliar to Chemring’s own history, not spectacular in any single year, but cumulative across cycles. In that case, the present valuation would say less about intrinsic worth than about the market’s difficulty in believing that a defense supplier long shaped by the vicissitudes of procurement cycles can, through discipline and memory, become something closer to a durable industrial enterprise. The transition currently underway suggests that CHG is, at worst, fairly valued, but more likely has a probability-weighted value, across a range of operational scenarios, of £9.29, representing a return of roughly 86% from the current price of £4.99.