Defence contractor Chemring (LON:CHG) has fallen nearly 5% at the time of writing, having released its interims (http://is.gd/Qracjf) earlier today. Turnover is down 10.8%, and the company has posted a loss. The order book is down, re-affirming the problems that are being faced in the Defence industry.

New senior management have been appointed during the period, and the company notes “important progress made in performance recovery programme”. This is a situation that has interested me as a potential turnaround play from awhile back. I was very curious to see how it would work out. The answer so far is: not so well. It shows that, when it comes to turnarounds, you really have to try to pick your spots. New management and the insitution of recovery programmes can /potentially/ be very interesting as special situations, but there doesn’t seem to be a hard-and-fast rule. The trick seems to be to spot sector tailwinds, and try to determine how effective management are likely to be. Investors in turnarounds CHG, compared to travel agents TCG (Thomas Cook Group) have completely different stories to tell. Over the last year, CHG has underperformed the market by about 28%, whilst TCG has outperfromed by 609% (exc. rights adjustments, which I’m too lazy to calculate. Suffice it to say that your outperformance would be even stronger).

CHG’s CEO, Mark Papworth, sums up the ambivalence of prospects:

“The Group has made good progress in the first half. The quality of our operations is improving, and while there is still much to do, we are confident that the Group’s performance is heading in the right direction. However, visibility generally, and the limited level of detail on the extent and nature of cuts to US defence spending in particular, makes forecasting increasingly difficult. For the current financial year, the Board’s outlook is towards the lower end of expectations.”

A scan through some of discussion on Stockopedia (http://is.gd/ivTolI) on CHG make for interesting reading. Perhaps our first hint that all was not a happening deal occurred back in Jun 2010 when Stockopedia News headlined “Chemring hit by interim profit dip but points to record order book”. Edison Research headlined with “Strong H2 required”. Noise in the general scheme of things, maybe, but with the benefit of hindsight, they are statements that make one wince.

In May 2011, John…

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