"On a superficial level LSE:CHRT:Cohort should be a good long-term investment. It has very experienced managers, and some of them own substantial holdings in the company. It has a profitable track record.For a relatively small group of businesses, ..."
"This year, like last year and the year before, I am using my 'decision engine' to select six shares for the annual Wealth Creation Guide. The decision engine allows me to compare corporate apples and oranges: small companies and large companies, ..."
Not so long ago the sp was 460p and it has fallen, almost in a vertical linr, down to 280 this morning and this is despite to-day's trading update saying that the results will be in line with the Board's expectations. Weird is it not? Either a very large position has been liquidated over the past few weeks or there has been heavy insider trading or the Board's expectations are very different from the market's.imho.
I think the answer is read through from the recent profits warning from Ultra Electronics - MOD deferring contracts to save cash. I have no idea whether this will also impact Cohort, but I suspect some holders were playing safe.
"The closure of SCS last November, the business upon which LSE:CHRT:Cohort was built, must have been a symbolic moment for the defence technology group. To understand where it's going, we must first look back, at where it came from.Outlasting the ..."
I sold my holding but noted IC stuck with another BUY on 29-Jun...
In a year of mixed determinants, defence company Cohort (CHRT) managed to drive the gross margin by around 480 basis points despite flatlining revenue. Excluding amortisations and one-offs, the defence group delivered record adjusted operating profit of £14.5m (£12m in FY2016), and the period under review saw the expansion of the product offering, improved geographic spread and enhanced opportunities for cross-selling.
The group's MASS business, which specialises in electronic warfare and communications, saw a slight increase in the top line, although its contribution to net earnings was constrained by increased overheads and one-off costs. However, management was pleasantly surprised by the early impact of naval and tactical communications specialist EID, in which Cohort secured a controlling interest this time last year. This maiden contribution included £4.2m in adjusted operating profit on £16m in revenue; a pointer to the higher-margin business mix of the acquired subsidiary. The MCL division's business mix also improved, aided by supply contracts for the delivery of tactical hearing protection systems for the British Army. The work is ongoing and MCL has been able to garner further domestic military orders for the technology.
Investec forecasts adjusted pre-tax profit of £15.5m for the April 2018 year-end, giving to EPS of 29.1p, against £14.5m and 27.6p in FY2017.
As expected, Cohort's cash flow and resultant net cash position suffered due to the deal to acquire EID, and the group is set to acquire a further 23 per cent to bring its holding to 80 per cent. However, the balance sheet remain in good nick and we still think there's upside in a relatively modest rating of 15 times forecast earnings. Buy
Agreed. I sold half my holdings after I'd doubled my money in no time so the remainder is just speculative growth and the divi kind of covers inflation. Think it will rise in time but also thinking there may be better homes for it.
Aim-traded shares in UK defence group Cohort (CHRT:410p) came within pennies of their 432p all-time high post-results last month, much as I predicted when I previewed the announcement ('Targeting record highs', 21 Nov 2016). It's a company I know well, having initiated coverage at 214p ('Blue-sky buy', 6 Oct 2014), and subsequently advised top slicing two-thirds of your holdings 415p at the end of 2015 ('On a roll', 15 Dec 2015).
The only question I now have is whether there is sufficient upside to warrant maintaining an interest. Having assessed the first-half figures, and taken into consideration guidance that points towards pre-tax profits rising by a fifth to £14.3m on12 per cent higher revenues of £125m in the 12 months to end-April 2017, as analysts at Edison Investment Research predict, I feel that a chart break-out is likely in due course. That's because almost £50m of Cohort's £129.6m order book at the end of October is deliverable in the second half, so underpinning a large chunk of Edison's full-year profit estimates, and the company has also won £16m-worth of additional orders since the end of the first half. Moreover, I feel that Edison's forecast of a further double-digit increase in pre-tax profits to £16.6m on revenues of £139m in the financial year to end-April 2018 is certainly achievable, a performance that would lift EPS from 24.1p to 33.4p, and support a rise in the payout from 7p to 8p a share.
That's because in the new financial year the company will benefit from a full 12-month contribution from EID, a Portugal-based supplier of advanced electronics, communications and control products for the global defence market that gives the company direct access in the EU, as well as new export markets. Cohort acquired a 57 per cent stake in EID for £8.9m last summer and is in the process of purchasing a further 23 per cent from the Portuguese government for £3.5m. The investment has proved earnings-accretive to Cohort - EIS contributed operating profit of £1.4m in the four months since acquisition of the 57 per cent stake - so it makes sense to deploy some of the company's net funds of £9.9m, a cash pile worth 25p a share, to raise its stake further. In fact, the Portuguese government has just granted EID a 7.5m (£6.4m) contract for the purchase of tactical radios for the Portuguese Army.
In addition, Cohort reported a much improved financial performance from its subsidiary MCL, a specialist in the sourcing, design, integration and support of communications and surveillance technology for the defence and security markets. The company has just acquired the 49.9 per cent minority interests in this business from its management, for £5.5m. The net result of these two transactions is to underpin a chunk of the forecast profit rise in the 2018 financial year, as will the elimination of losses at its defence consultancy business SCS, which has been reorganised with activities subsumed into other parts of Cohort's business.
The bottom line is that if Cohort can deliver on Edison's expectations, its 473p a share sum-of-the-parts valuation doesn't seem unreasonable to me, equating to a forward PE ratio of 14 post recent analyst earnings upgrades. Buy.
(CHRT:395p) have passed through the 387p target price I outlined when I last rated them a buy at 350p ('Riding small cap bumper gains', 24 Oct 2016). I initiated coverage at 214p ('Blue-sky buy', 6 Oct 2014), subsequently advised top slicing two-thirds of your holdings at 415p ('On a roll', 15 Dec 2015), and running profits at 315p (In defence, 6 Jul 2016).
The driver behind the latest share price move was news that Cohorts subsidiary SEA, an advanced systems and software business operating in the defence, transport and offshore energy market sectors, has been awarded contracts by Transport for London (TfL) to develop and provide ongoing support of its Digital Traffic Enforcement System (DTES) and a Parking Enforcement Solution (PES) mobile application. The combined orders are valued at £7m and include 10 years of support for both systems. SEA originally developed the DTES system on behalf of TfL, and has provided support since it entered service seven years ago.
The announcement was made a matter of weeks after Cohorts Cambridgeshire-based subsidiary MASS, a specialist systems house with a focus on electronic warfare operational support, cyber defence and secure information systems, won a nine-year extension worth £12m to its managed IT service contract at RAF Waddington. Chief executive Andy Thomis points out that the awards "add further visibility to our order book, which underpins a significant proportion of revenues for Cohort's current financial year".
He has a point as analysts anticipate that £60m worth of contract renewals and new orders will convert in the financial year to end April 2017, accounting for almost half of revenue estimates of £132m, and help deliver a 20 per cent increase in Cohorts full-year pre-tax profits to £14.3m, rising to £15.6m the following year. On this basis, expect full-year EPS of about 26p, rising to 31.6p the year after, implying the shares are rated on 12.5 times earnings estimates. Thats still not a punchy rating for a lowly geared highly cash generative company, and one where the board are expected to raise the dividend per share from 6p to 7p.
With major contracts being won, and the company well on course to deliver double digit earnings growth, I would not rule out the share price returning to the November 2015 all-time high of 432p. Run profits.
(CHRT:350p) has announced a reorganisation of its operations which will see defence consultancy division SCS integrated into other parts of the business. The unit generated revenues of £18.1m of group revenues of £112m last financial year, but margins were only 6.6 per cent, a reflection of a tightening of consultancy fees paid by its main customer, the UK Ministry of Defence. The impact of this has been to increase the proportion of lower-margin work carried out by SCS following the end of several profitable projects, particularly the cessation of activity in Afghanistan. The reorganisation of SCS will cost Cohort around £2m, but will generate annual cost savings of £1.6m, so it makes sense to do so.
Importantly, trading in Cohorts other businesses remains buoyant. A nine-year extension worth £12m to its managed IT service contract at RAF Waddington highlights ongoing strong trading at Cambridgeshire-based subsidiary MASS, a specialist systems house with a focus on electronic warfare operational support, cyber defence and secure information systems. Analysts at Edison Investment Research expect £60m worth of contract renewals and new orders to convert across the group in the financial year to end April 2017, a credible prediction given that Cohorts opening order book of £116m accounted for half of current year revenue estimates of £132m and has improved year-on-year since then. Expectations of a 20 per cent increase in Cohorts full-year pre-tax profits to £14.3m, rising to £15.6m the following year, are well supported by the order backlog.
On this basis, expect full-year EPS of 26p, rising to 31.6p the year after, implying the shares are rated on 11 times earnings estimates. Moreover, buoyed by robust cash generation, net debt is expected to be cut from almost £20m to £5.2m during the financial year to end April 2017, so the board have scope to raise the dividend per share from 6p to 7p, as analysts predict.
Having initiated coverage on Cohort when its shares were priced at 214p ('Blue-sky buy', 6 Oct 2014), I subsequently advised top slicing two-thirds of your holdings at 415p ('On a roll', 15 Dec 2015), and my last recommendation was to run profits at 315p (In defence, 6 Jul 2016). With a further 10 per cent upside to my target price of 387p, I am maintaining that stance. Run profits.
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(CHRT:315p) are down by almost a fifth since I advised running profits at 390p in early April ('Cohort's contract boost', 4 Apr 2016), albeit they are still well ahead of the 214p level at which I initiated coverage ('Blue-sky buy', 6 Oct 2014), and I did recommend top slicing two-thirds of the holding when the price was 415p in mid-December to capitalise on a near-100 per cent total return ('On a roll', 15 Dec 2015). This meant that if you followed that advice the balance of your holding is in the price for free, and you also have cash in the bank.
The question is whether the shares have potential to re-rate from here? I think they do. That's because Cohort's defence prospects in the UK appear to be largely immune to any direct impact from Brexit, due to the long-term nature and operational importance of its major programme exposures, and export markets remain attractive. In fact, last month's earnings-accretive acquisition of a majority stake in EID, a Portugal-based supplier of advanced electronics, communications and control products for the global defence market, gives the company direct access in the EU as well as new export markets. Cohort acquired a 57 per cent stake in EID for £8.9m and intends to purchase a further 23 per cent from the Portuguese government for 4.4m (£3.7m) by the end of October. EID generated sales of 18.9m and operating profit of 2.9m in 2015 and continues to report low to mid-teens growth, so the investment will be immediately earnings accretive to Cohort especially as the company ended the full year to the end of April 2016 with net funds of £19.8m, a cash pile worth 49p a share.
I would also flag up that once you strip out a one-off exceptional tax credit worth 2.2p a share, EPS rose 22 per cent to 25p in the financial year, a performance underpinned by organic revenue and operating growth of 5 per cent and 13 per cent, respectively. In other words, the contracts Cohort has been winning have largely delivered this outcome rather than acquisitive growth. A closing order book of £116m underpins prospects for the year ahead when analyst Andy Chambers at Edison Investment Research believes Cohort's revenues will rise from £112m in the 12 months to the end of April 2016 to £132m to lift adjusted pre-tax profit by 20 per cent to £14.3m. On this basis, expect underlying EPS to rise to around 26.5p and underpin a further 17 per cent hike in the dividend to 7p a share following the 20 per cent increase the board have just declared.
On this basis, Cohort shares are rated on 10 times cash-adjusted forward earnings estimates and offer a prospective dividend yield of 2.2 per cent. That's a harsh rating for a company with a solid order book, exposure to a currency tailwind on overseas earnings, and one with a cash-rich balance sheet.
In the circumstances, I would recommend running your profits on the balance of your holdings as I can see the investment risk here to the upside. Analyst sum-of-the-parts valuations around 387p a share look a realistic target to me. Run profits.
(CHRT:390p) have rallied by more than 25 per cent since hitting a low of 308p in mid-February. The price move is of interest to me because having initiated coverage on the shares at 214p around 18 months ago ('Blue-sky buy', 6 Oct 2014), and banked total dividends of 5p a share in the interim period, I decided to top slide two thirds of the holding when the price was 415p in mid-December to capitalise on a near-100 per cent total return in only 14 months ('On a roll', 15 December 2015). This meant that if you followed that advice the balance of your holding is in effect in the price for free. It also meant that you had cash in the bank to exploit the subsequent sell-off and strong bounce back rally.
And the shares got another lift at the end of last week after the company announced that its SEA subsidiary, an advanced systems and software business operating in the defence (naval systems, simulation, training and technology research), has been awarded a further order by BAE Systems to provide external communications systems on a Royal Navy contract. The eventual value of the order is likely to be worth around £17m and will cover further procurement and design activities. This second stage order continues SEA's involvement in the Royal Navy contract into 2017, and further orders are expected in 2017 too.
Post the announcement, analysts Andy Chambers at Edison Investment Research believes "there is significant upside to our sum-of-the-parts based fair value of 445p." Edison predicts that Cohort's revenues will rise from £115m in the 12 months to end April 2016 to £132m in the following 12 months to lift adjusted pre-tax profits from £11.7m to £14.2m. Part of this growth is being driven by a raft of contract wins over the past 18 months, and partly by the acquisition of a 57 per cent stake in EID, a Portugal-based supplier of advanced electronics, communications and control products for the global defence market. That deal completed earlier this year. The £7.7m cash consideration was more than covered by net funds of £11.4m on Cohort's balance sheet.
On this basis, expect EPS to rise from 21.8p to 26.7p, respectively, and support dividend per shares of 6p and 7p. This means the shares are currently being rated on 14.6 times' forward earnings and offer a prospective dividend yield of 1.8 per cent. That rating doesn't seem too stretched to me given that the company is in a strong financial position to service the raft of contracts it has been winning and which underpin a large part of the earnings growth predicted. Cohort also has funds available to make additional bolt-on acquisitions.
So with a return to last autumn's highs of 432p quite possible if this contract momentum driving earnings is maintained, then I would continue to run your healthy paper gains with Cohort's shares trading on a bid-offer spread of 385p to 390p. Run profits.
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