In my expertise as a former senior funding financial institution dealer and longtime non-public investor the FTSE 250 is an effective place to seek out tomorrow’s stars in the present day.

This might effectively be the case with high-tech defence agency Chemring (LSE: CHG), for my part. Its core capabilities embrace newest know-how methods for lively cyber defence, digital warfare, and aerial and naval countermeasures, amongst others.

It’s a international chief in countermeasures methods, supplying 85% of NATO’s air fleets and 60% of its naval fleets. It’s a key provider of precision know-how to NASA and SpaceX, offering 230 merchandise to the Mars Perseverance mission alone. And it’s a ‘trusted supplier’ to the UK Ministry of Defence on a variety of cyber defence and different methods.

An more and more harmful world?

No matter any peace deal reached in Ukraine, I feel Russia will maintain testing NATO’s jap flank.

This might not come at a worse time for the European members of this safety alliance. US President Donald Trump has made it clear that his nation is not going to defend any member not contributing sufficiently to its defence.

The determine he most frequently mentions is 5% of their gross home product (GDP). In 2024, the typical spend was 2% of GDP.

Consequently, the European Fee introduced in March {that a} new €800bn (£670bn) defence fund shall be established. Shortly afterwards Germany exempted defence spending from its federal debt guidelines, probably liberating up limitless euros of further funding.

Given its ongoing work with NATO and with the US Division of Protection, Chemring seems ideally positioned to learn from this atmosphere.

How does the core enterprise look?

A danger to the agency is a significant malfunction in considered one of its methods that is perhaps pricey to repair and damaging to its popularity.

Nonetheless, its income elevated 8% yr on yr to £510.4m in 2024. Working revenue leapt 28% to £58.1m. And its order ebook hit an all-time excessive of £1.038bn – an increase of 13% on the yr.

Analysts forecast its earnings will improve by 18% a yr to the top of 2027. And it’s exactly this development that powers a agency’s share price over time.

Chemring is focusing on round £1bn of income by 2030. Income is the full earnings made by a agency whereas earnings are what stay after bills have been deducted.

What may this imply for the share price?

The agency’s 24.5 price-to-earnings ratio is undervalued towards its peer group’s common of 27.1. These companies comprise Northrop Grumman at 18.7, BAE Techniques at 26.3, L3 Harris Applied sciences at 27.3, and RTX at 36.

Additionally it is undervalued on the price-to-book ratio, at which it trades at 2.9 in comparison with a 3.6 common of its opponents.

I ran a reduced money movement analysis to seek out out what this all means in share price phrases.

Utilizing different analysts’ numbers and my very own, this reveals Chemring shares are 45% undervalued at their present £3.78. Subsequently, their truthful worth is £6.87, though shares go down and up in worth.

Will I purchase the inventory?

I already maintain BAE Techniques and Rolls-Royce so one other inventory within the defence sector would unbalance my portfolio.

If it weren’t for this I might purchase Chemring based mostly on its earnings development prospects and I feel it’s value different traders contemplating.