Broker snap: Little chance of another bid for Chemring, says Credit Suisse



LONDON (ShareCast) - Shares in defence contractor Chemring continued to fall on Thursday morning after The Carlyle Group announced last night that it will not be making an offer for the company.

Credit Suisse (NYSEArca: CSMA - news) reiterated its 'neutral' rating and 330p target price for the stock today, saying: "We see slim chance of other bids in the short term."

The broker highlighted three reasons for this:

1) Chemring announced a profit warning since the initial approach from US asset management firm Carlyle. Credit Suisse said: "We believe management has been struggling to cope with deteriorating end-market conditions, and, with no permanent CFO and a sudden CEO replacement, we see risk that the situation deteriorates further before any improvements";

2) Obama's re-election suggests that visibility on defence spending will remain weak. The broker said that a Democrat win makes it increasingly likely that that US base budget declines at a 8% compound annual growth rate in 2012-14;

3) US primes are prioritising restricting and returning cash to shareholders ahead of M&A, the broker said. "Further, we think other private equity bidders could be put off by Carlyle walking away after a period of extended due diligence."

While the shares trade at just 7.8 times forward estimated earrings, the broker said it is staying cautious, saying that the stock is "clearly volatile given earnings uncertainty".

Shares were down 6.9% at 240.14p in mid-morning trade on Thursday. The stock finished last week at 277.3p.