Chemring Drops as Contract Delays Lead to Lower Forecast

Chemring Group Plc, the target of a takeover approach by Carlyle Group LLP, fell the most in more than 15 years after delays in Middle Eastern sales and a new countermeasures product led to a profit-forecast cut.

Chemring is reducing its earnings-per-share prediction for the 12 months through October by 13 pence, the Fareham, England-based maker of aircraft protection and other military equipment said in a statement today, without specifying a target figure. Five analysts with updated estimates had been expecting earnings of 43 pence a share.

The forecast cut is Chemring’s second since the manufacturer said on Aug. 17 that it was in takeover talks with U.S. private-equity firm Carlyle. The group has also ousted Chief Executive Officer David Price, who will be replaced by Mark Papworth on November 5.

Chemring fell as much as 19 percent to 252.6 pence, the biggest intraday drop on a closing basis since April 1997. The stock was trading down 17 percent at 8:41 a.m. in London, valuing the company at 505 million pounds ($815 million).

“The profit warning reduces any remaining likelihood of a successful bid” by Carlyle, said Oliver Sleath, a London-based analyst at Credit Suisse. The forecast cut “provides fresh evidence that Chemring is suffering from deep-rooted, structural problems, combined with substantial end-market headwinds, that will require substantial time, and management reorganization, to address.”

Chemring said the forecast revision was in part due to development snags with a countermeasure systems, which needs re-testing before it’s accepted by the customer. It didn’t identify the product.

A contract for aircraft countermeasures with an unidentified Middle East buyer had slipped into next year, while delays in receiving an export license for a mortar system would also affect earnings, the manufacturer also said. Chemring said it doesn’t expect the licensing issue to be resolved in the near term.

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