The Cohort Group comprises six military, electronics and intelligence development operations spread across the UK, Germany, and Portugal. The six are: Chess offering electro-optical tracking and surveillance systems for naval and land defence and security customers; EID designs and makes advanced communications systems for naval and land defence customers; ELAC SONAR supplies advanced sonar systems and underwater communications to global customers in the naval marketplace; MASS provides advanced digital services serving the defence and security markets MCL designs, sources and supports advanced electronic and surveillance technology for the UK MOD and other government agencies; SEA delivers and supports technology-based products for the defence and transport markets alongside specialist research and training services.

12 Aug 2022

FY22 results – Record orders bode well

We initiate coverage on Cohort Group with a Fair Value of 650p/share.

Clearly the nature and duration of the ongoing conflict in Ukraine, and its impact on near-term Group performance, is hard to predict. However, the recent change in stance by NATO and in general towards overseas defence, adds both confidence and momentum to our medium-term outlook for Cohort.

The standout feature of recent FY results was a record year-end order book of £291m. This underpins £128m or 78% of market FY23 revenue outlook and gives increased visibility and management confidence in FY23 performance which is “expected to be ahead of 2021/22”. Furthermore, the company reports that revenue coverage reached 90% by early July, adding that order longevity is also increasing.

Analysis of Cohort’s peers with exposure to the defence sector indicates a market cap-weighted average EV/EBITDA of 9.1x and PE of 18.0x. Hence the rerating potential of Cohort leads us to conclude that 650p/share is a more realistic assessment of the Group’s inherent fair value.

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