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Cohort rides defence spending wave


Cohort Plc LON:CHRT, the AIM-listed defence company, has continued its forward advance. The Reading-based weapon systems manufacturer built on last year’s record performance and delivered results slightly ahead of expectations.

In its trading update to end-April 2024, Cohort said that trading performance for the year was slightly ahead of expectations on the back of a very strong order intake of GBP387m, up 77.5% year-on-year. This led, said the company, to a growth in revenue and profits

The company has also built up its cash armoury, increasing net funds from GBP15.6m in April 2023 to GBP23m. The company was expecting strong demand to continue in a growing market in last year’s results, and delivered a record closing order book of GBP518m, up 57.4% year-on-year. This order book gave Cohort’s management confidence that it would meet or exceed market expectations, as the order book underpins GBP180m, or 90% of current market revenue expectations.

As previously 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.

The defence company explained that its Sensors and Effectors division performed very strongly, especially its Chess and SEA subsidiaries, however, its Communications and Intelligence subsidiaries were a bit disappointing on the back of the UK Ministry of Defence slowing procurement in comparison with the previous years and the Portuguese military still dragging its feet on prearranged contracts.

Substantial Royal Navy order boosts Cohort results

The order book included a EUR16m (GBP13.6m) December follow-on 60-month contract win for ELAC to provide submarine sonar to the Italian navy, followed in January by a GBP15.1m win for SEA to supply torpedo launch systems to the Canadian navy. In March Chess won a GBP15.7m contract to provide surveillance systems for Australia’s Hunter class frigates and later that month Cohort’s SEA subsidiary won a chunky GBP135m naval countermeasures contract with the Royal Navy.

The Royal Navy contract includes the provision and support of SEA’s Trainable Decoy Launcher System, known as Ancilia, which delivers effective and rapid protection against modern anti-ship threats and sophisticated systems and tactics. It will be installed across a range of the Royal Navy’s surface ships. Its design builds on SEA’s deep knowledge of existing systems in service with the Royal Navy.

Andy Thomis, Cohort’s CEO said at the time: “This is a significant win for SEA and the group, and the project will deliver greatly enhanced protection for the Royal Navy’s surface ships against new and potent threat technologies. Over the life of the project, we estimate it will sustain employment for 150 skilled and professional people in North Devon, and export success could see this increase further still.”

Rise in global defence spending

Thomis explained that Cohort continues to see good demand for our products and services from both domestic customers and from export customers. The drivers for increased investment in defence have amplified during the year, with the ongoing conflicts in Ukraine and the Middle East, coupled with tensions in the Indo-Pacific region leading to increased global defence spending.

With an encouraging pipeline of order opportunities for the current year, providing a positive outlook for organic growth in the years ahead, things are looking good for Cohort.

Bridgewise, the AI-powered financial analyst rates Cohort as ‘Outperform’. The analyst said: “Cohort’s recent financial results position the company within the top 30% of Industrials firms. Specifically, Net Change in Cash and Return on Equity Ratio (ROE) overperformed relative to its peers. Analysing past performance, stronger relative performance in these metrics has often been associated with a higher likelihood of a company’s stock outperforming industry competitors. In view of Cohort’s recent financial performance, the company’s stock seems to present an appealing investment option in the Aerospace and Defence industry.”

Robin Speakman, an analyst for Shore Capital said: “Cohort offers a solid and growing order book with a robust book-to-bill ratio (set to continue), a positive industrial backdrop in defence and security markets, and a strategic supplier position with clients, all point positively to a premium valuation being sustained for Cohort, in our view.”

Speakman continued: “In March we set a 30% upgraded interim valuation target of 805p which has pleasingly being reached.  We sense much more delivery and value creation to come and feel comfortable in sustaining our ‘Buy’ case. So, we anticipate a material increase in our fair value analysis coming from the results in July.”

Cohort opened trading at 827.2p and has put on 68.8% in one-year and is up 48.7% year-to-date. The company has a market capitalisation of GBP345m and its shares have ranged between 430p and 848p over a 52-week period.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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