FTSE 250 high-tech defence agency Chemring (LSE: CHG) is buying and selling at a 14-year excessive of £5.54. The final time it traded at greater than this was 1 September 2011, when it hit £5.65.

That mentioned, there can nonetheless be worth left within the shares as price and worth are various things.

I took a deep dive into the enterprise and ran the important thing numbers to resolve the agency’s valuation.

Elevated spending by NATO

Chemring’s shares are buying and selling at such lofty ranges partly due to the growing defence menace to the West. Most instantly this comes from Russia, however long run from China as nicely. 

NATO Secretary Normal Mark Rutte mentioned in December that “it is time to shift to a wartime mindset”. He added that the alliance’s members usually are not spending sufficient to organize for a future battle with Moscow. He concluded by urging members to “turbocharge” their defence spending.

US President Donald Trump has prompt that the US is not going to defend NATO allies that aren’t spending sufficient on defence.

The determine now being focused by Europe’s NATO members is 5% of every nation’s gross home product. Final yr, they spent a median of two%.

File order e-book

Chemring’s share price rise can be up because it appears to be like nicely positioned to learn from this elevated spending.

It’s a world chief within the Sensors & Data, and Countermeasures & Energetics sectors. These embody cutting-edge merchandise for chemical and organic menace detection, and digital warfare capabilities. Moreover, it produces methods for the detection of improvised explosive gadgets.

It provides 60% of NATO’s naval fleets and 85% of its air fleets. Additionally it is a key precision know-how provider to NASA and SpaceX. And it’s on the UK Ministry of Defence’s ‘trusted supplier’ listing for a spread of cyber defence and different methods.

A threat right here is any main failure in one among its key merchandise. This might harm its popularity and its order e-book.

That mentioned, Chemring’s H1 2025 outcomes regarded extraordinarily good to me. Its order e-book jumped 25% yr on yr to £1.303bn – the very best in its historical past. Order consumption over the interval soared 42% to £488m.

Income rose 5% to £234.3m, whereas underlying earnings earlier than curiosity, taxes, depreciation, and amortisation elevated 12% to £39.8m. Underlying revenue was up 8% to £27.1m.

Chemring is well-positioned to extend annual income to £1bn by 2030 (from £510m in 2024), based on the agency.

How does the share valuation look?

I ran a reduced money circulate analysis to determine the honest worth of Chemring’s shares.

Utilizing different analysts’ figures and my very own, this exhibits the inventory is 32% undervalued at its £5.54 price.

Due to this fact, the ‘fair value’ for the inventory is £8.15.

Given its robust progress prospects and really undervalued price, I’m sorely tempted to purchase Chemring shares.

Nonetheless, I have to stay conscious of the truth that I have already got holdings in BAE Techniques and Rolls-Royce. Consequently, including any extra shares within the defence sector would unbalance my portfolio.

That mentioned, I believe it’s nicely definitely worth the consideration of different traders whose portfolios it fits.