Cash-rich Cohort is too cheap

Cohort is made up of four subsidiaries spanning surveillance systems and software, electronic warfare technology and consultancy. A key attraction of the group's strategy is that it caters to niche contemporary warfare markets, which fits with its main customer, the Ministry of Defence, which now prefers intelligence assets, submarines and combat aircraft to tanks and guns. Its latest acquisitions and contract wins also reflect Cohort's aim of increasing its exposure to the defence-thirsty regions of Asia and the Middle East.

In October, Cohort acquired J+S, a manufacturer of sonar systems, torpedo launchers and various naval equipment. J+S sells in the UK, Canada and Malaysia - where military spending is surging due to territorial disputes in the South China Sea. This should open new export markets for Cohort's existing surveillance and software business.

What's more, J+S's order book at the end of September 2014 is expected to be in excess of £33m, while a forecast operating profit of £1.5m on revenue of £14m makes Cohort's £12m outlay seem good value for money.

Similarly impressive was Cohort's £8m purchase of a majority stake in electronic and surveillance technology provider Marlborough Communication. This acquisition provides Cohort with the ability to offer fully integrated electronic warfare, communications and intelligence to customers, and also looks a keenly priced deal considering that Marlborough is expected to have delivered sales of about £12.4m in the 12 months to September 2014.

Indeed, analysts at Investec were so impressed by the two acquisitions that it increased its EPS growth forecasts by 5 per cent for the current year and 15 per cent for the year to April 2016. What's more, these figures didn't factor in the three contracts that followed hot on the heels of the acquisitions.

At the beginning of last month a £3m deal with a new Middle Eastern customer for the provision of electronic warfare operational support services was announced, followed by a £9m contract renewal to provide electronic warfare operational support services to an unnamed export customer.

Most lucrative of all, however, was the £23m deal with BAE Systems (BA.) to provide its external communications system (ECS) for the entire Royal Naval submarine fleet, with a further "significant" order for ECS on Royal Navy submarines expected next year. The encouraging news should make more palatable the market's justified concerns about the liquidity of the shares - Cohort's co-founders own 31 per cent of the share capital, while institutional investors also hold large stakes.