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Today’s Falling Knife: Chemring Group Plc Crashes As US Shutdown Takes Its Toll

The shares of Chemring (LSE: CHG) dived by 19% to 230p  this morning after the FTSE 250 mid-cap revealed its North American business had been materially affected by the US government shutdown. The company claimed its October order intake, and deliveries to the US Department of Defence, are both likely to be impacted.

Chemring, which manufactures munitions and explosive weapons, also said it continued to face quality and production issues at its Kilgore decoy flares subsidiary. The combined effect of its ongoing difficulties, according to the company, will be an £8m blow to operating profits this year.

There was a sliver of positive news to encourage investors, however — Chemring Countermeasures has been awarded a significant contract in the Middle East, which should boost the group’s revenues this year.

Giving its updated outlook for the year, the company stated:

“Early indications, given the continuing difficult market conditions, are that FY14 performance is likely to be less than the anticipated current year outturn”

With a market cap of £447m, Chemring shares trade at 12 times last year’s earnings, and were previously expected to yield 2.8% in 2013.

Of course, whether that valuation, today’s update and the future prospects for the defence industry all combine to make shares of Chemring a ‘buy’ remains your decision.

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> Mark owns no securities listed in this article.