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 has now received clearance from the competition authority in Portugal and discussion are ongoing between Cohort and the new Portuguese government to agree the terms of the relationship between the two parties. The £7.7m proposed cash consideration is 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.
I have published four columns today and 30 in the past three weeks, all of which are listed below.
