Although the War in Ukraine has directly and indirectly contributed to economic instability globally, some businesses have benefitted from the conflict. ‘All wars are fought for the sake of getting money,’ said Plato, and Cohort Plc AIM:CHRT, the AIM-listed defence company has had a good few years.
The Reading-based manufacturer published its first quarter update today (26th September). The company announced “record financial results” in the year to end-April, closing out the period with a record closing order book of GBP329.1m, stretching out to 2032.
The defence company said that both its operating profits and revenue exceeded market expectations.
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Since the beginning of the financial year, Cohort took in contracts of more than GBP90m and as at the close of last week the order book was GBP370m which is 93% of the analyst consensus’ revenue for the current financial year.
Inflation and higher interest cost – as for all businesses over the last year – have nibbled away at the defence company’s cash, falling 2.5% year-on-year to GBP15.2m, but has, said the group in a statement: “[retained] significant cash and banking facilities to fund its currently anticipated commitments and, potentially, to finance future acquisitions.”
Investing its cash
The company warned that it will be investing in its subsidiaries during the year, and net cash balance will be eroded a bit more, but by the end of the year will be in positive territory.
UK Ministry of Defence spending has buoyed Cohort’s position. In the latest MoD integrated spending review published in March, the government provided the ministry an additional GBP5bn over the next two years to help replenish and bolster vital ammunition stocks, modernise the UK’s nuclear enterprise and fund the next phase of the AUKUS submarine programme.
As previously reported, Cohort specialises in communications, surveillance, tracking on land and sea and its subsidiary ELAC specialises in providing passive and active sonar systems to submarines and surface ships. AUKUS is a trilateral security pact between Australia, the United Kingdom, and the United States. Under the pact, the US and the UK will assist Australia in acquiring nuclear-powered submarines.
As an illustration of increased UK defence spending in the period, Cohort’s subsidiary SEA (Systems Engineering & Assessment Limited) which focusses on maritime communications, torpedo launchers and decoys won a GBP17.5m contact to provide an external communications system for a major defence programme. The external communications system, said Cohort, will provide enhanced real-time data exchange, critical information dissemination, and seamless co-ordination, significantly enhancing overall mission effectiveness.
The company said: “Overall, we have had an encouraging start to the 2023/24 financial year and our expectations for the full year remain unchanged.”
Demand for Cohort products continues to be high
Robin Speakman, a defence analyst for broker, Shore Capital said: “Cohort […] has published a strong, in line trading update for 1Q23. Overall, demand for Cohort’s products continues to be high, with key defence clients remaining highly active in the period. We were impressed with Cohort’s products at DSEI (Defence and Security Equipment International trade show) and anticipate strong demand to continue going forwards.”
As we have previously reported, the company’s share price hasn’t really reflected its performance. Cohort opened trading today at 507.9p and has offered a year-to-date return of -1.6% and one-year return of 5.8% with its shares ranging between 384p and 560p over a 52-week period. The company’s market capitalisation was GBP206m.Speakman said: “We have a fair value of 610p per share, indicating over 20% upside […] for FY24F the group trades on a PER of 14.1x, EV/EBITDA 7.8x and a dividend yield of 2.9%. In our view, the share price should begin with a ‘6’ to reflect potential in a growing market and we see a cash flow-derived fair value of 610p per share.”
The broker rates Cohort as a ‘Buy’. Bridgewise, the AI-powered analyst said: “Cohort’s recently released results from 1Q23 indicate that Cohort is performing reasonably well and on par with its peers. It is highly likely that it will be mostly tethered to market performance and sector movements for the near term. Therefore, Cohort received an overall score of 76, translating into a ‘Outperform’ ranking.”
