Hawk Eye32
09 Jan 2017
SIMON THOMPSON Bought these @ 0.71p when tipped by the above in the IC a few years ago still think the y worth holding. Div yield is poor but is a growth share.
r21442
09 Jan 2017
Yet another 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.
r21442
21 Nov 2016
And another Shares in Aim-traded UK defence group Cohort (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 Cohort’s 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 Cohort’s 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 Cohort’s 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. That’s 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.
r21442
24 Oct 2016
Another IC comment today Aim-traded UK defence group Cohort (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 Cohort’s 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 Cohort’s 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 Cohort’s 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.
II Editor
06 Oct 2016
NEW ARTICLE: Five shares for the watchlist "Each month Richard Beddard trawls through annual corporate results for his Watchlist and the Share Sleuth portfolio of companies that satisfy key valuation metrics such as earnings yield and return on capital - and profiles the most interesting ..."[link]
r21442
06 Jul 2016
Re: Latest IC article Cohort (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.
r21442
04 Apr 2016
Latest IC article Shares in Aim-traded UK defence company Cohort (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.
mcescher
28 Mar 2016
Good analysis report on CHRT I found this website that uses analysts estimates of free cash flow to find intrinsic value. Looks promising for Cohort: [link]
caesat
17 Dec 2015
Price I've never really lost money if the company has good management. My timing can be off a bit.
Jack Diamonds
16 Dec 2015
Re: IC advising top slice It could be a good call to bank profits but 18 days ago the advice was to run with profits. To much short term views IMO. Held these since early days and definitely not letting go yet. Excellent Management will have an end game.........
r21442
15 Dec 2015
IC advising top slice Aim-traded UK defence company Cohort (CHRT: 415p) has announced a 29 per cent surge in first half adjusted EPS to 7.1p, and has revealed that order intake at the end of October accounted for 90 per cent of consensus revenue estimates for the financial year to end April 2016. The closing order book of £140m, up from £134m at the end of April, is highly supportive too and reflects a number of multi-million pound contract wins in recent months. I wouldn’t be surprised of further awards either as chairman Nick Prest rightly points out that: "The recently concluded UK Strategic Defence and Security Review gives support to existing programmes, such as submarines, in which Cohort is engaged and foresees greater expenditure in areas such as Cyber and Special Forces in respect of which Cohort has strong and relevant capabilities."The company is also augmenting its strong organic growth with acquisitions and expects to acquire a 57 per cent stake in EID, a Portugal-based supplier of advanced electronics, communications and control products for the global defence market, in early January. The £7.7m cash consideration is more than covered by net funds of £11.4m on Cohort’s balance sheet. The deal will be earnings accretive too and supportive of analyst estimates that Cohort’s EPS will rise from 22.6p in the current financial year to 26.2p in the 12 months to end April 2017. Mr Prest expects his company to acquire the outstanding equity in EID by June 2016 at the latest.The positive trading backdrop for Cohort’s businesses, it’s knack of winning contracts, and scope for earnings accretive acquisitions, has not been lost on investors. In fact, having initiated coverage at 214p ('Blue-sky buy', 6 Oct 2014), and banked total dividends of 5p a share, excluding the interim just declared of 1.9p a share, up 19 per cent year-on-year, the holding has produced a near 100 per cent total return in the past 14 months. Rated on 15.5 times prospective earnings for the April 2017 financial year there could be further upside, so I would top slice two thirds of your holdings and enjoy a free ride on the balance.
r21442
26 Nov 2015
Latest IC comment Aim-traded shares in small-cap UK defence company Cohort (CHRT:418p) look poised to test their record high of 432p hit earlier this month after the company announced yet another contract win yesterday.In the past few months the company has won a contract worth in excess of £3m for the provision of Electronic Warfare operational support services to an export customer, and another worth £11.2m with the Ministry of Defence (MoD) to provide the armed forces with tactical hearing protection systems for the dismounted close combat user. The latest award this week is a two-year contract worth £9.7m under which Cohort's defence consultancy division will provide training and exercise support to the MoD's Joint Forces Command. Cohort has now won five successive tenders with the MoD specifically for this type of work in the past 15 years, so I wouldn't bet against the MoD exercising its option to extend the contract for another two years as well.The contract starts in April so will have minimal impact on forecasts for the current financial year to end April 2016 when analysts expect Cohort to report a 17 per cent rise in revenue to £117m. On this basis, expect pre-tax profit to increase from £10.2m to £12m to produce EPS of 22.6p in this 12-month period. However, the growing order book is clearly highly supportive of forecasts for the 2017 financial year (April year-end) when analysts expect Cohort's revenues to rise by 13 per cent to £131m and boost pre-tax profit by a further 18 per cent to £14.2m to generate EPS of 26.2p. On this basis, Cohort's shares are rated on 16 times earnings estimates for the 12 months to the end of April 2017, but with order momentum building then the risk for an earnings beat is increasingly likely in my view.That's because I now estimate that the latest award takes the order book above £150m, but this excludes the pipeline of work - valued at €35.2m (£23m) - which EID, a Portugal-based supplier of advanced electronics, communications and control products for the global defence market, has in its order book. Cohort announced the acquisition of EID in the summer and I covered the deal at the time ('Acquisitive growth drives re-ratings', 6 Aug 2015). The transaction is expected to complete in the coming weeks. Bearing this in mind, analysts believe that EID should be able to turn in operating profit of £1.3m on revenue of £12.7m in the 2017 financial year, so well over half the forecast uplift in Cohort's pre-tax profit for that period is covered by the contribution from EID. Moreover, the cash consideration of £11.8m payable on completion is now completely covered by cash on Cohort's balance sheet, thus avoiding the need to tap a new debt facility of £25m.Importantly, this means that Cohort's board has ample capital available to fund the spate of new contracts, and tender for new work too, so there are no working capital constraints. It also means that if Cohort continues to convert its tender pipeline into firm contracts then the profit increase embedded in the aforementioned forecasts is going to prove far too conservative.In the circumstances, it's hardly surprising that investors have been warming to the investment case. In fact, Cohort's shares have almost doubled since I initiated coverage at 214p ('Blue-sky buy', 6 Oct 2014). But given I feel that this earnings cycle driving the re-rating is yet to peak, I would resist banking profits and recommend riding the upward momentum in the business. Run profits.
II Editor
06 Nov 2015
NEW ARTICLE: Cohort: A tough hold "Decisions to buy or sell are easy, but deciding not to buy or sell can be very taxing.I’ve been agonising about Cohort. The shares have done well enough to lift the Share Sleuth portfolio’s holding to 5% and put the company on quite a ..."[link]
r21442
15 Oct 2015
Latest IC comment Aim-traded shares in small-cap UK defence company Cohort (CHRT: 400p) hit an all-time high of 400p yesterday after the company announced it had won a contract to provide Electronic Warfare operational support services to an export customer. The work will begin immediately and will contribute to revenue in the current year and beyond. The contract has a value in excess of £3m.This latest award comes shortly after Cohort won a contract worth £11.2m with the Ministry of Defence (MoD) to provide the armed forces with tactical hearing protection systems for the dismounted close combat user. The win follows on from a previous UK MoD contract earlier in the year, supplying Cohort's Tactical In-Ear Protection Plugs as part of the tactical hearing protection system for the basic user soldier.Furthermore, the company's board revealed at the recent annual meeting that around two-thirds of revenue for the 2015-16 fiscal year is now underpinned by customer orders, slightly higher than at the same period in 2014. I reckon the latest award takes the company's order book above £140m, and this excludes the pipeline of work - valued at €35.2m (£26m) - which EID, a Portugal-based supplier of advanced electronics, communications and control products for the global defence market, has in its order book. Cohort announced the acquisition of EID in early August and I covered the deal at the time ('Acquisitive growth drives re-ratings', 6 Aug 2015). The transaction is expected to complete in early December.So with Cohort winning a spate of new contracts, it's hardly surprising that investors have been warming to the investment case. In fact, the shares have now risen by 87 per cent since I initiated coverage at 214p exactly a year ago ('Blue-sky buy', 6 Oct 2014). You will also have banked a 5p a share dividend for the financial year ending 30 April 2015 if you followed that advice. The question is whether there are more gains to come?Earnings growth well underpinned by robust order book For the current fiscal year to end April 2016, analysts expect Cohort to report a 17 per cent rise in revenue to £117m to drive up pre-tax profit from £10.2m to £12m and generate EPS of 22.6p. For the year after, the respective forecasts are revenue of £131m, pre-tax profit of £14.2m and EPS of 26.2p. On this basis, Cohort's shares are rated on 15 times earnings estimates for the 12 months to the end of April 2017. However, it's also worth noting that the company's net funds have risen from £4.8m at the end of April to £12.4m at the end of August. This means that the €16m consideration for the EID transaction, equating to £11.8m at current exchange rates, is fully covered by cash on the balance sheet without the need for Cohort to tap a new debt facility of £25m with a syndicate of banks including RBS, Barclays and Lloyds. Moreover, as analysts believe that EID should be able to turn in profit of £1.3m on revenue of £12.7m in fiscal 2017, then half the forecast uplift in pre-tax profit for that financial year is already covered by the contribution from EID. This highlights the solid visibility of earnings.Of course, there is scope for more earnings upgrades if, as seems highly likely, Cohort continues to win new work that it is currently tendering for. Potential contracts being pursued include submarine communications work; roadflow traffic enforcement systems in the UK and for export; and communications systems for surface vessels. The company may also make further earnings accretive acquisitions too.The technical set-up is also supportive of more gains as Cohort's share price gave bullish point and figure and swing buy signals yesterday. My advice here is simple: run your profits ahead of the interim results which are due to be released in a few months time to exploit the new upleg in the Cohort re-rating, and the potential for more positive newsflow on contract awards.
II Editor
24 Sep 2015
NEW ARTICLE: Cohort AGM: Back on mission "Defence technology company Cohort floated in 2006 with the intention of completing one acquisition a year. For a while things went quiet, but it’s resumed its acquisitive mission. There could not be much more of a contrast between ..."[link]
