Recent progress: Despite sector-wide headwinds last year, including procurement and supply chain issues in the US and ongoing CV-19 disruption, Chemring’s FY21 results printed on 14 December 2021 delivered a third consecutive year of i) order book growth with improving order cover, ii) organic revenue growth, iii) margin progress on a more stable business mix, iv) no exceptional P&L items, v) operating cash conversion above 100%, and vi) reduced period-end net debt and intra-period net debt volatility. The strong results and outlook caused us to upgrade FY22/23E EPS by 4-5% at the time. Catalysts present upside: In the next 6-9 months, we expect further progress on US Sensors programmes of record with Low-Rate Initial Production (LRIP) decisions expected on both the JBTDS and AVCAD programmes, presenting upside risk to our forecasts if awarded. We re-publish our Group earnings upside scenario in this note, which generates a Bull Case valuation of 515p. Deployable balance sheet: With FY21A net/debt EBITDA of 0.35x and net cash, on our estimates, achieved by FY23E (Oct y/e), there appears sufficient balance sheet flexibility to execute on potential inorganic opportunities. We note the acquisition of Cubica (announced June 2021) as potentially being indicative of the size and strategic direction of possible future acquisitions. Attractive free cash flow: Following a period of modernisation investment, Chemring’s free cash conversion (FCF/adj. PAT) is inflecting upwards this year (>80% by FY23E). A FCF yield of 4.5% in CY22E rising to >6% in CY23E appears attractive, with Defence generally uncorrelated to moves in bond yields relative to other industrials, providing defensiveness in a market rotation as well as the upside to sentiment from a changing geopolitical landscape. Next scheduled event: AGM statement – 03 March 2022. No changes to estimates: TP 410p (unchanged). Reiterate key Buy.