Robust orders outpace Cohort's strong revenue growth

Cohort (CHRT) has been a beneficiary of the increased focus on defence following Russia’s invasion of Ukraine last year.

Not only has its top line risen by 22 per cent, but orders in the period ran ahead of this by around a third to £119mn. Its order book closed up by around £25mn at £354mn. Other wins in the six weeks since have pushed this up by a further £12mn, to £365mn. Not only does this mean that 95 per cent of this year’s consensus forecast revenue is already covered, but around £120mn of next year’s is also in the bag. 

Both of the company’s main operating divisions reported stronger sales, with the communications and intelligence arm growing its top line by a third thanks to an increase in orders from the Ministry of Defence. The larger sensors and effectors business also grew revenue by 15 per cent, but both arms reported a slight weakening of net margins.

Although there were specific reasons within each division, a big increase in headcount as the company staffs up to meet additional demand was a factor. Cohort has taken on around 170 staff over the past year – 100 in the past six months – and the associated costs of recruiting and getting people up to speed added to its costs. 

As new staff bed in, and as supply chain pressures continue to mitigate, the company expects an improvement in performance during the second half and left full-year guidance unchanged.

Cash generation was also strong, helped by a series of advanced payments for work that will be delivered by the sensors and effectors arm in the second half. An increase in capex is also expected as a project to deliver sonar equipment to the Italian navy moves from development into production. 

As a result, a slight unwind of its net cash position (excluding leases) is expected in the second half, from £13.3mn at the half-year stage to between £8mn and £10mn by the year-end. 

Higher spending also means analysts expect earnings per share to be marginally weaker (1 per cent) than last year, but an acceleration is forecast from 2025 onwards. Shore Capital analysts argue that “future growth appears assured”, given that the group is well managed, amply financed and has good visibility over its workload. We concur, and with the company’s shares trading at a reasonable multiple of 14.5-times earnings – in line with their five-year average – maintain our buy.

Last IC View: Buy, 489p, 19 Jul 2024