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.
Please note that I have written four articles yesterday and another column today, all of which are included in the list of my articles below.
MORE FROM SIMON THOMPSON...
I have published articles on the following companies in the past three weeks:
■ Trakm8: Run profits at 195p, target 220p; Character Group: Run profits at 518p, target 575p; Marwyn Value Investors: Buy at 220p; Global Energy Development: Speculative buy at 30p; Software Radio Technology: Buy at 27p, target range 40p to 43p; Globo: Buy at 33p, target 69p; Pittards: Hold at 105p ('Cashed up for cash returns, 22 Sep 2015).
■ KBC Advanced Technologies: Buy at 112p, initial target 142p; K3 Business Technology: Run profits at 298p; Cenkos Securities: Buy at 177p; Netplay TV: Buy at 10p ('Small cap value plays', 23 Sep 2015).
■ Miton: Buy at 26.5p, target 35p; 32Red: Buy at 73.75p, target 90p; Stanley Gibbons: Buy at 138p; Vislink: Buy at 40p, target 70p ('Building momentum', 29 Sep 2015)
■ Moss Bros: Buy at 97p, target 120p; GLI Finance: Buy at 52p, target 80p; Town Centre Securities: Buy at 315p, target 350p; Globo: Buy at 39p, target 69p ('Platforms for success', 30 September 2015)
■ Safestyle: Run profits at 255p; Epwin: Run profits at 138p; Manx Telecom: Buy at 188p, target 210p ('Income plays with capital upside', 1 October 2015)
■ LXB Retail Properties: Buy at 86p, target 99p ('Bag a retail property bargain', 5 October 2015)
■ Creston: Run profits at 162p, target 171p; Fairpoint: Run profits at 184p, new target range 200p to 220p; Trifast: Buy at 114p, target 140p; 600 Group: Buy at 16p, target 24p; Renew Holdings: Buy at 315p, target range 350p to 375p; Stanley Gibbons: Hold at 105p ('Engineering ratings upgrades', 6 October 2015)
■ STM Group: Buy at 71p, target 80p ('Riding small cap winners', 7 October 2015)
■ First Property Group: Buy at 39.5p, target 49p ('In pole position for re-rating', 7 October 2015)
■ Tristel: Run profits at 99p, target 110p ('Cleaning up with superbug buster', 7 October 2015)
■ Equity market strategy ('Bull market pointers', 8 October 2015)
■ Gresham House: Buy at 320p, target 450p ('A mandate for strong growth', 12 October 2015)
■ Tristel: Run profits at 123p, new target 130p to 135p ('Cleaning up', 13 October 2015)
■ AB Dynamics: Run profits at 267p ('Under-promising, over delivering', 13 October 2015)
■ Trakm8: Run profits at 245p ('Motoring ahead', 13 October 2015)
■ PROACTIS: Buy at 102p, new target 130p ('Secured growth for re-rating', 13 October 2015)
■ Avation: Buy at 148p, target 200p ('Flying higher', 14 October 2015)
■ Cohort: Run profits at 400p ('Cohort on a roll', 14 October 2015)
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking'
