Cohort Plc AIM:CHRT, the AIM-listed defence company published its half year results for the six months ending 31st October 2022 today (14th December).
The Reading-based security-focussed technology company announced a 194% increase in adjusted profits to GBP5m compared to GBP1.7m for the same period in 2021. Revenues grew 29% to GBP77.5m and order intake was GBP88.6m, down from GBP105.3m in the same period of 2021.
The defence company closed its order book at GBP304.2m – increasing from GBP291m at the end of April, which covered 95% of consensus forecast revenue for the full financial year.
Existential threats
As previously reported Cohort has been one of the few beneficiaries of the War in Ukraine, as the conflict has focused the minds of governments to existential security threats, and defence budgets in the western democracies and emerging nations of Asia have been upwardly reviewed to protect national interests against threats to national security.
Andrew Thomis, chief executive of Cohort said in a call with The Armchair Trader this morning, that the first half has been very positive in terms of performance for Cohort, with: “significant improvements from last year,” from most of the company’s business units.
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As reported, Cohort’s divisions are: Mass, providing cyber defence and electronic warfare support to maritime and air assets; ELAC Sonar, providing passive and active sonar systems to submarines and surface ships; MCL a communications and surveillance specialist; SEA, focussing on maritime communications, torpedo launchers and decoys; EID a division that offers integrated communications systems to personnel deployed in the field; and Chess which provides tracking, fire control and anti-drone solutions for maritime and land platforms.
Chess improving game
One of the areas of concern this year, as previously reported, were the performance of Chess and EID. Thomis said that the company had made significant management changes at Chess, which contributed to: “a large swing in performance, which has positively contributed to the group’s revenue [this period].”
However, EID still is underperforming the group’s expectation, primarily due to supply constraints and slow decision-making with a key client. “They’re [Chess & EID] not quite there yet,” said Thomis, “but both [units] are showing good momentum and moving in the right direction.”
The company took a tour of South-East Asia during the period, presenting at a regional arms show in Indonesia, and delivering training to the army and navy in the Philippines. Thomis sees the Pacific as a key, strategic market with “good opportunities ahead”, as nations in the theatre build up their defensive capabilities in light of the threat from China.
China is investing heavily in its surface water and submarine fleets, and this has seen countries including, the Philippines, Australia, Taiwan and Indonesia invest in their naval systems. Thomis added that even Japan had announced a doubling in its defence spending.
“If you think of the shipping lanes and global trade transacted though the region, a conflict there could have serious global ramifications,” he added.
Home front
Cohort opened trading today at 410p and was up to 444p by lunchtime, offering a year-to-date return of -16.9% and one-year return of -26.3%. The company’s market capitalisation was GBP169.6m
It is not just export markets Cohort has grown, the (British) Royal Navy awarded SEA a GBP34m five-year deal with an additional option of extension for another five years to support onboard systems, launchers and countermeasures for the Royal Navy’s Type 23 frigates, along with provision for spares.
Simon Walther, Cohort’s finance director explained on the call that the company’s total UK order book was around GBP86m, with small-, medium-, and large-scale contracts. Most sales were of capital machinery, systems, training and supplies, but: “Chess and EID are moving towards – as you put it: ‘a subscription model’ – with recurring revenues, which from a financing perspective is very good for smoothing out revenues over a [consistent] period […] this [recurring revenue] model also allows us to stay close to our customers, allowing us to be first-at-hand when they are looking to upgrade or acquire new equipment.”
The company had net debt of GBP600,000 as at 31st October, down from GBP6.1m as at end-October with net funds on 9th December of GBP7.6m. Cohort increased its interim dividend by 10% to 4.25p per share.
