Cohort – Despite having doubled in price this year, I feel that there is so much more left to go for in buying this group’s shares, now 1033p, TP 1163p

10.12.2024

The independent technology group Cohort (LON:CHRT) is due to announce its Interims tomorrow.

The Business

Cohort is a holding company, which provides a range of services and products for domestic and export customers in defence and related markets.

The Theale, Reading-based company operates through two main segments: Communications and Intelligence and Sensors and Effectors.

The Communications and Intelligence division comprises the subsidiary businesses which provide electronic hardware and software solutions used for collecting, processing, and communicating information securely.

It also includes the provision of domain expertise, training, and support services.

The Sensors and Effectors division comprises of Chess Dynamics, SEA and ELAC SONAR, which provides sensors, including sonar, radar and visual, for land and sea domains.

It also provides effectors for surface ships and land-based users to protect against sea, air and land-based threats including submarine, missile, and drone attacks.

Its markets include Combat systems, digital services, training and simulation, intelligent transport systems and others.

Its Subsidiaries

Communications and Intelligence

EID designs and manufactures advanced communications systems for naval and military customers.

MASS is a specialist data technology company serving the defence and security markets, focused on electronic warfare, digital services and training support.

MCL designs, sources and supports advanced electronic and surveillance technology for UK end users including the MOD and other government agencies.

Sensors and Effectors

Chess offers surveillance, tracking and fire control systems to the defence and security markets, and special projects for demanding environments.

ELAC SONAR supplies advanced sonar systems and underwater communications to global customers in the naval marketplace.

SEA delivers and supports technology-based products for the defence and transport markets alongside specialist research and training services.

The Latest Acquisition

On Thursday 21st November the group announced the proposed £75m acquisition of the Australian-quoted EM Solutions, which is a leading Australia-based developer and producer of high-end SATCOM terminals for global naval and defence customers.

This is considered to be a very big move for the Cohort group, which is due to be part-funded by way of a £40m institutional Placing of 4.57m new shares at 875p each, representing some 9.8% of the enlarged equity upon completion.

Management Comment

Cohort CEO Andy Thomis stated that:

"The proposed acquisition of EM Solutions in Australia is highly complementary and is in line with our stated strategy to accelerate growth by making targeted acquisitions in the UK and overseas.

Australia is an increasingly important strategic region, reflecting the increased security challenges in the Indo Pacific, and the creation of the AUKUS alliance.

EM Solutions represents a compelling opportunity to access the fast-growing satellite communications market, further broadening the Group's strong existing naval systems service offering, whilst bringing new customers and enhancing our combined position in the UK, NATO Europe, Asia and South America.

This is our largest acquisition to date, adding Cohort's seventh standalone business and creating a materially larger Group.

With the strong momentum being reported by Cohort and EM Solutions, together with the substantial combined orderbook, the Acquisition is expected to be materially enhancing to adjusted EPS in the first full financial year (2025/26) and onwards.

We are looking forward to welcoming the EM Solutions team to Cohort and working together to realise the multiple growth opportunities that this transaction affords."

The Equity

There are some 46.55m shares in issue.

The larger holders include Schroder Investment Management (8.77%), Liontrust Asset Management (5.38%), Canaccord Genuity Wealth (4.40%), Schroder Private Banking (3.24%), Herald Investment Management (3.22%), Hargreaves Lansdown Asset Management (3.04%), Unicorn Asset Management (3.04%), Royal London Asset Management (1.64%), and Quilter Cheviot (1.51%).

Chairman and Co-Founder Nicholas Prest owns 3.85% of the group’s equity, while Co-Founder Stanley Carter holds 19.52%.

Analyst Views

Three analysts follow the group and rate the shares as a Buy.

The average Price Objective is 1163p.

The consensus estimates for the current year to end-April 2025, are for revenues of £240.7m, with adjusted operating profit of £27.5m, earnings of 45.0p, paying a dividend of 15.5p per share, and with end-year net debt of £19.8m.

For the 2026 year, expectations are for £281.5m of sales, £36.1m operating profit, 56.0p of earnings, with a 16.4p per share dividend, ending with net debt of just £1.0m.

The year to end April 2027 could see revenues of £301.9m, profits of £40.7m, earnings of 63.5p per share, and a 17.4p dividend, with the year-end net funds of £13.6m.

In My View

The latest deal for EM Solutions is impressive, insomuch that it opens up even more markets for the Cohort portfolio of products and services, while bringing in a very useful additional player within the group.

Unfortunately, so many investors get switched off from buying into shares where the price is so high, such as Cohort at 1033p – but I always counter such reticence by noting that companies like Cohort are doing business globally, have big order books and are actually making profits.

Having more than doubled in price this year, the group’s shares are currently trading at around their five-year High point, valuing it at some £467m.

They may well ease back after the recent uplift post the EM acquisition news, if they do then it could well pay to tuck into a few.

The group’s Interim Results to end-October are due to be announced tomorrow morning, so let us hope for some positivity in comment and reaction.