Cohort – Defense Outfit Set to Change Gears

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Cohort – Defense Outfit Set to Change Gears

The Reading-based Cohort (LON:CHRT) provides a wide range of services and products in the defence, security, intelligent transport systems and subsea engineering sectors.

The £173m company will report its Interim figures for the six months to the end of October within the next fortnight or so.

The half-time figures should be good and indicate that the group is well back on the growth path again.

The Business – Defensively Global

Employing around 1,000 people, Cohort is the parent company of six innovative, agile and responsive businesses (MASS, SEA, MCL, ELAC SONAR, Chess and EID), based in the UK, Germany and Portugal, providing a wide range of services and products for domestic and export customers in defence and related markets.

MASS, which accounts for 28% of group sales, is a specialist data technology company serving the defence and security markets, focused on electronic warfare, digital services and training support.  

Accounting for 22% of sales, SEA delivers and supports technology-based products for the defence and transport markets alongside specialist research and training services. 

Responsible for 16% of sales, MCL designs, sources and supports advanced electronic and surveillance technology for UK end users including the MOD and other government agencies.

Contributing 16% of sales, ELAC SONAR supplies advanced sonar systems and underwater communications to global customers in the naval marketplace. 

Making up some 12% of the group’s 2022 sales, its Chess company offers surveillance, tracking and fire-control systems to the defence and security markets.

Finally adding 6% of sales, EID designs and manufactures advanced communications systems for naval and military customers.

AGM Statement and First Quarter Update

At the end of September, the group issued an AGM Statement and First Quarter Update.

The group reported that it started with a record closing order book with strong cover for the current financial year commencing 1 May 2022. It also stretched up to 2030, which was very encouraging.

The AGM was informed that recent order wins since the start of this financial year had totalled over £70m, the order book on 20 September 2022 stood at over £300m with revenue cover of current consensus forecast for the year of 95%. 

The group has around £7m cash and readily available credit of over £40m, providing significant financing headroom beyond its currently anticipated commitments.

It expects that its current year trading performance will be ahead of that achieved for the year ended 30 April 2022.

Furthermore, based on current orders for long-term delivery and the company’s pipeline of opportunities, it also remains optimistic that it will make further progress in 2023/24.

The Equity – A Tight List

There are some 41.37m shares in issue.

Holders include S Carter, the Cohort founder (21.92%), Schroder Investment Management (12.10%), Liontrust Asset Management (11.45%), Canaccord Genuity Wealth Management (10.39%), Nick Prest, Chairman (4.33%), Herald Investment Management (3.27%), and Unicorn Asset Management (3.25%).

Research View – A DCF of 683p

Analyst Andy Chambers at Edison Investment Research has estimates out for the current year tend April 2023 for group revenues rising from £137.8m to £164.1m, while lifting pre-tax profits up to £17.6m (£14.7m), with earnings of 34.2p (31.1p) and a dividend of 13.4p (12.2p) per share.

The Edison model shows out a capped discounted cashflow value of 683p for the group’s shares.

My View – Ready to Run Up Again

This is a company that I have followed since it was first quoted on AIM way back in 2006.

The company itself stresses a number of reasons why its shares are attractive.

It notes that it has a strong business model. That it has a consistent dividend track record. That it offers access to attractive growth markets.

The group also comments that it has a strong balance sheet and that all of its acquisitions since 2008 have been funded by the use of both cash and debt.

Furthermore, it has multiple opportunities to accelerate growth through its acquisition programme.

Importantly, the group also has a visibility of future earnings provided through its substantial order pipeline, while its order book extends out to 2030.

Considering the sectors at which it points itself – it surprises me still that it has not been snapped up by an overseas private equity group.

Cohort shares, which were up to 600p this time last year before easing back to 390p at the start of this month, are currently trading at around the 418p level.

The company’s shares are undervalued, relative to the group’s importance within its sector, and they look ready for another upward run as we go into 2023.

It is certainly time to get this Cohort on your side.

(Profile 06.08.19 @ 446p set a Target Price at 607p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)

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