Chemring Group reports 334% EBITDA growth in 2019 and 13.4 pp EBITDA Margin growth from 4.7% to 18.1%
16 Dec 2019 • About Chemring Group (
$BC88) • By InTwits
Chemring Group reported FY2019 financial results today. Here are the key drivers of the company's long term financial model:
- EBITDA Margin is quite volatile: 18.1% in FY2019, 4.7% in FY2018, 10.6% in FY2017, 14.6% in FY2016, 11.4% in FY2015
- Chemring Group has medium CAPEX intensity: 5 year average CAPEX/Revenue was 5.0%. At the same time it's in pair with industry average of 5.1%
- CAPEX is quite volatile: £41m in FY2019, £19m in FY2018, £13m in FY2017, £10m in FY2016, £8m in FY2015
- The company has business model with low profitability: ROIC is 7.9%
- It operates with high leverage: Net Debt/EBITDA is 1.2x while industry average is 0.1x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Chemring Group's Revenue jumped on 12.7%. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased slightly on 1.9 pp from 8.2% to 10.1% in FY2019.
Stock Based Compensation (SBC) as a % of Revenue showed almost no change in FY2019.
Net Income margin jumped on 42.1 pp from -35.6% to 6.5% in FY2019. The efficient tax rate was 14.1% in FY2019.
Investments (CAPEX, working capital and M&A)
In FY2019 Chemring Group had CAPEX/Revenue of 12.2%. The company showed fast CAPEX/Revenue growth of 10.1 pp from 2.2% in FY2016 to 12.2% in FY2019. For the last three years the average CAPEX/Revenue was 7.0%. The company invested a big chunk of EBITDA (67.4%) to CAPEX to fuel its growth. CAPEX as a % of Revenue grew at 2.4 pp per annum in the last 5 years.
Inventories as a % of Revenue decreased slightly on 0.71 pp from 24.0% to 23.3% in FY2019.
Return on investment
The company operates at low ROIC (7.9%) and ROE (7.3%). ROIC jumped on 11.6 pp from -3.7% to 7.9% in FY2019. ROE jumped on 37.7 pp from -30.4% to 7.3% in FY2019.
Leverage (Debt)
Debt level is 1.2x Net Debt / EBITDA and 1.3x Debt / EBITDA. Net Debt / EBITDA dropped on 4.6x from 5.8x to 1.2x in FY2019. Debt dropped on 15.8% while cash dropped on 86.5%.
Chemring Group has good short term financial stability: Interest coverage ratio (ICR) is 6.4x. Chemring Group has short term refinancing risk: cash is only 1.9% of short term debt.
Average interest expence charged on company's debt was 6.4% in FY2019.
Valuation and dividends
The company's trades at EV/EBITDA 12.3x and P/E 30.7x.
The company paid 45.7% of Net Income as dividends in FY2019.
Management team
Chemring Group's CEO Michael Ord is a founder and has spent 1 year with the company. CEO total compensation was £1,021,000 in FY2019 which included £430,000 salary and £527,000 annual bonus. Chemring Group's CFO Andrew G Lewis has spent 3 years with the company.
Insider ownership is 0.85%. Insider ownership didn't change in 2019.
The company has 2,453 employees. The number of employees decreased on 4.1%. Average revenue per employee in FY2019 was £136,649 and it surged on 17.6%.
Financial and operational results
FY ended 31 Oct 2019
Chemring Group ($BC88) key annual financial indicators| mln. £ | 2015 | 2016 | 2017 | 2018 | 2019 | 2019/2018 |
|---|
P&L
|
|---|
| Revenue | 377.3 | 477.1 | 547.5 | 297.4 | 335.2 | 12.7% |
| Gross Profit | 104.8 | 123.4 | | | | |
| SG&A | 70.4 | 74.9 | | | | |
| EBITDA | 42.9 | 69.6 | 58.3 | 14.0 | 60.8 | 334.3% |
| EBIT | | | | -16.6 | 31.5 | |
| Interest expence | | | | 4.7 | 4.9 | 4.3% |
| Tax | | | | 18.8 | 3.6 | -80.9% |
| Net Income | -0.4 | 11.1 | 6.6 | -105.8 | 21.9 | |
| Stock Based Compensation | | | | 1.1 | 2.5 | 127.3% |
Balance Sheet
|
|---|
| Cash | 7.6 | 63.1 | 33.6 | 9.6 | 1.3 | -86.5% |
| Inventory | | | | 71.4 | 78.1 | 9.4% |
| Short Term Debt | 0.5 | 29.6 | 51.6 | | 69.2 | |
| Long Term Debt | 161.3 | 121.0 | 61.9 | 91.3 | 7.7 | -91.6% |
Cash flow
|
|---|
| Capex | 8.2 | 10.3 | 12.6 | 18.8 | 41.0 | 118.1% |
| Dividends | | | | 9.0 | 10.0 | 11.1% |
Ratios
|
|---|
| Revenue growth | -6.4% | 26.5% | 14.8% | -45.7% | 12.7% | |
| EBITDA growth | -33.8% | 62.2% | -16.2% | -76.0% | 334.3% | |
|
|---|
| Gross Margin | 27.8% | 25.9% | | | | |
| EBITDA Margin | 11.4% | 14.6% | 10.6% | 4.7% | 18.1% | 13.4% |
| EBIT Margin | | | | -5.6% | 9.4% | 15.0% |
| SG&A, % of revenue | 18.7% | 15.7% | | | | |
| SBC, % of revenue | | | | 0.4% | 0.7% | 0.4% |
| Net Income Margin | -0.1% | 2.3% | 1.2% | -35.6% | 6.5% | 42.1% |
| CAPEX, % of revenue | 2.2% | 2.2% | 2.3% | 6.3% | 12.2% | 5.9% |
|
|---|
| ROIC | 1.4% | 5.8% | 3.3% | -3.7% | 7.9% | 11.6% |
| ROE | -0.1% | 3.2% | 1.6% | -30.4% | 7.3% | 37.7% |
| Net Debt/EBITDA | 3.6x | 1.3x | 1.4x | 5.8x | 1.2x | -4.6x |
| Interest coverage ratio (ICR) | | | | | 6.4x |
| Interest expence / Average debt | | | | 4.6% | 6.4% | 1.8% |
People
|
|---|
| Insider ownership | | | | 0.9% | 0.9% | 0.0% |
| Employees | | | | 2,559 | 2,453 | -4.1% |
| Revenue/Employee, th. £ | | | | 116 | 137 | 17.6% |
Peers in Aerospace & Defense
Below we provide Chemring Group benchmarking against other companies in Aerospace & Defense industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 |
|---|
| Velocity Composites Plc ($VEL) | -4.9% | 0.6% | 46.2% | 14.5% | |
| Boeing Co ($BOE) | 5.9% | -1.6% | -1.2% | 8.3% | |
| Qinetiq Group ($QQ.) | -2.4% | -1.1% | 3.6% | 6.4% | |
| |
|---|
| Median (3 companies) | 0.4% | -1.3% | 4.6% | 8.3% | |
|---|
| Chemring Group ($BC88) | | 26.5% | 14.8% | -45.7% | 12.7% |
Top companies by Gross margin, %
| Top | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 |
|---|
| Boeing Co ($BOE) | 14.6% | 14.6% | 18.6% | 19.4% | |
| Velocity Composites Plc ($VEL) | 24.0% | 23.8% | 18.4% | 18.3% | |
| |
|---|
| Median (2 companies) | 23.9% | 19.9% | 19.0% | 18.9% | |
|---|
Top companies by EBITDA margin, %
| Top | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 |
|---|
| Qinetiq Group ($QQ.) | 17.9% | 13.6% | 20.6% | 20.8% | |
| Boeing Co ($BOE) | 9.7% | 8.2% | 13.2% | 13.9% | |
| Velocity Composites Plc ($VEL) | 8.0% | 4.4% | -0.9% | -3.4% | |
| |
|---|
| Median (3 companies) | 11.9% | 7.4% | 12.9% | 13.9% | |
|---|
| Chemring Group ($BC88) | 11.4% | 14.6% | 10.6% | 4.7% | 18.1% |
Top companies by CAPEX/Revenue, %
| Top | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 |
|---|
| Qinetiq Group ($QQ.) | 3.2% | 3.8% | 3.9% | 5.5% | |
| Boeing Co ($BOE) | 2.5% | 2.8% | 1.9% | 1.7% | |
| Velocity Composites Plc ($VEL) | 1.7% | 0.8% | 1.3% | 0.9% | |
| |
|---|
| Median (3 companies) | 2.9% | 3.3% | 2.7% | 1.7% | |
|---|
| Chemring Group ($BC88) | 2.2% | 2.2% | 2.3% | 6.3% | 12.2% |
Top companies by ROIC, %
| Top 5 | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 |
|---|
| Boeing Co ($BOE) | 38.9% | 38.5% | 82.7% | 78.8% | |
| Qinetiq Group ($QQ.) | 26.8% | 24.7% | 29.9% | 20.6% | |
| Velocity Composites Plc ($VEL) | 93.2% | 32.2% | -7.9% | -11.1% | |
| Cobham ($85GU) | 0.5% | -36.8% | 5.9% | | |
| Bae Systems ($BA.) | 27.9% | 26.0% | 18.4% | | |
| |
|---|
| Median (6 companies) | 27.4% | 25.4% | 16.6% | 20.6% | |
|---|
| Chemring Group ($BC88) | 1.4% | 5.8% | 3.3% | -3.7% | 7.9% |
Top companies by Net Debt / EBITDA
| Top | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 |
|---|
| Boeing Co ($BOE) | -0.1x | 0.1x | 0.2x | 0.4x | |
| Qinetiq Group ($QQ.) | -1.3x | -2.6x | -1.3x | -1.5x | |
| |
|---|
| Median (2 companies) | 0.1x | 0.2x | 0.3x | -0.5x | |
|---|
| Chemring Group ($BC88) | 3.6x | 1.3x | 1.4x | 5.8x | 1.2x |
