Despite flat revenues, Cohort (CHRT) reported a marked increase in full-year earnings thanks to lower amortisation charges and a favourable comparison with FY2017, when £2.57m of costs linked to the former SCS division were booked. Strip out the amortisation of intangible assets, along with one-off items and currency translations, and adjusted operating profit was up 8 per cent at £15.6m.
Military budgets remain under pressure, particularly in the defence contractor’s domestic market, where a “continuing hiatus in research expenditure and re-scheduling of expenditure on the UK submarine programme” undermined the performance of SEA, a systems engineering and software business, which experienced a 15 per cent fall in sales to £37.8m and a proportional decline in profitability. With no recovery in sight for the UK market, management is restructuring SEA in order to "align its cost base with its expected revenue stream”.
By contrast, MASS Consultants, an electronic warfare and cyber-security specialist, recorded a 20 per cent rise in adjusted operating profit on a 15 per cent uplift in revenue. The latter rise is noteworthy given that MASS has absorbed the joint warfare unit of the SCS division, although a more favourable margin mix and a step-up in cyber activity supported profitability.
Margins were constricted at Marlborough Communications (MCL) due to an increased proportion of ‘bought-in’ product compared with support work. Year-on-year comparisons were always likely to pale due to high order levels for Hearing Protection Systems by the MoD in 2016-17, which underlines MCL’s long-standing commercial relationship with the UK’s ISTAR programmes (Intelligence, Surveillance, Target, Acquisition & Reconnaissance). The order intake of £12.1m was appreciably down on the £23.3m booked through FY2017.
Management rightly points out that the Government's Strategic Defence Review published in 2015 prioritised spending in areas where the group’s capabilities are strong, but order intake fell to £76.6m from £108.6m in the previous period. Cohort said this was primarily the result of delays rather than mothballing or cancellations, but MoD budgets remain under the cosh, regardless of the recent intervention by US defence secretary Jim Mattis for the UK to up the ante.
Investec gives adjusted pre-tax profit of £16.4m for the April 2019 year-end, leading to EPS of 31.4p, against £15.5m and 29.7p in FY2018.
| COHORT (CHRT) | ||||
| ORD PRICE: | 365p | MARKET VALUE: | £150m | |
| TOUCH: | 355-375p | 12-MONTH HIGH: | 430p | LOW: 281p |
| DIVIDEND YIELD: | 2.2% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 178p* | NET CASH: | £11.3m | |
| Year to 30 Apr | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 71.6 | 6.7 | 14.8 | 4.2 |
| 2015 | 100 | 5.9 | 14.0 | 5.0 |
| 2016 | 113 | 5.3 | 19.1 | 6.0 |
| 2017 | 113 | 1.0 | 9.1 | 7.1 |
| 2018 | 112 | 9.9 | 19.9 | 8.2 |
| % change | -1 | +924 | +119 | +15 |
| Ex-div: | 23 Aug | |||
| Payment: | 19 Sep |
