Cohort boosts revenue visibility

Cohort’s (CHRT) half-year figures were in line with the May trading update with strengthening revenues and greater top-line visibility due to a 45 per cent increase in order intake. As at 30 April, the order book stood at 64 per cent of the consensus forecast. Operating profits of £7.8m were broadly in line with the prior year once the increase in amortisation charges, one-off items and R&D costs are factored into the equation.

Shareholders will benefit from a 0.7p increase in the final dividend to 7.6p, part of a successive increase in the annual dividend since the defence contractor was admitted to trading in 2006. Thanks to improved operating cash flow, the group remains in a net cash position (ex-lease liabilities), despite forking out around £25m in distributions through the year.

Naturally, the pandemic presented certain logistical challenges to operations, but management undertook measures to mitigate the impact of Covid-19, such as changing shift patterns to reduce worker interaction during production. Overall, there was limited disruption to the group’s supply chains, though there were delays on some projects which require access to customer sites. The group estimates that the disruptions through FY 2021 hit revenues to the tune of £6m, while half of the group’s operating businesses recorded reduced adjusted operating profits.

Looking ahead, the group expects that profits will be constrained by a weaker year at EID, a Lisbon-based producer of communications systems, but management is optimistic that the pipeline of potential orders will translate into a higher rate of growth in 2023/24. The outlook is favourable over the medium-term, yet the shares have lost a quarter of their value since mid-May, leaving them trading at an inviting 15 times consensus earnings. Buy

Last IC View: Buy, 571p, 23 Jul 2020