Interactive Investor

Records fall at dividend-paying AIM company

19th July 2023 15:43

by Graeme Evans from interactive investor

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There’s been a positive response to results from this business with a solid track record of returning cash to shareholders. Shares are up 10% today.

Fighter jet 600

A defence sector minnow whose dividend has grown every year since joining AIM in 2006 today revealed record results to help its shares get back on the front foot.

Cohort (LSE:CHRT), which is the parent company of six businesses based in the UK, Germany and Portugal, surged in value after highlighting a strong pipeline of opportunities alongside the better-than-expected figures for the April financial year.

It said its closing order book of £329.1 million underpinned a record 80% of market revenue expectations for 2023-24 worth £140 million, although subsequent wins at the start of the new financial period mean this cover is over 90%.

Co-founder and the Reading-based company’s long-serving chair Nick Prest said: “Our order book is not only growing in value, but its longevity continues to increase and we now have orders across the group stretching out to 2032.”

This week’s refreshed UK Defence Command Paper outlined additional £2.5 billion investment into stockpiles and munitions, as well as greater focus on science and technology to gain the edge on the battlefield.

This highlighted the potential opportunities for Cohort, including its Communications and Intelligence division where activity is dominated by the Ministry of Defence. Its other division of Sensors and Effectors plays an important role in the delivery and support of the Royal Navy's submarines and surface vessels.

The shares have come under pressure since hitting 500p in the wake of the company’s upgrade to results guidance at the end of May. They rose 43.5p to 489p today, but Investec Securities believes there’s further upside after taking its target price 40p higher to 740p.

The broker, which upgraded its earnings forecasts for this financial year and the next one by 2%-4%, described Cohort as attractively valued in a shrunken listed defence sector that no longer includes the likes of Ultra Electronics and Cobham.

Investec said: “The ongoing Ukraine/Russia conflict and geopolitical tensions around China support defence spending, driving demand for Cohort’s niche products and services.

“Cohort stands out as a long-term beneficiary with exceptional visibility. The balance sheet continues to provide optionality.”

Cohort expects an improved trading performance for 2023-24 and is optimistic that it will make further progress in 2024-25, based on current orders for long-term delivery and on its pipeline of opportunities.

Today’s results for 2022-23 showed a 33% rise in revenues to £182.7 million and 23% improvement in operating profits to £19.1 million. Net funds of £15.6 million were better than the expected, driven by an improved cash performance from the Chess Dynamics surveillance, tracking and fire-control business acquired in 2018.

Adjusted earnings per share today came in 17% higher at 36.48p as Cohort announced plans to pay a dividend of 9.15p a share on 3 October for a 10% increase in the total to 13.40p.

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