Initiation note - 'Record orders bode well'
The nature of the ongoing conflict in Ukraine, and its impact on near-term Cohort 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, Cohort 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.
Cohort is a holding company. Co. operates through its subsidiaries: Empresa de Investigacao e Desenvolvimento de Electronica, S.A., which is engaged in the fields of electronics, tactical and naval communications, command and control; MASS Consultants Limited, which is an electronic warfare operational support, cyber security, secure ICT networks and support to operations business serving customers primarily in defense and security markets; and Marlborough Communications Limited, which is a supplier of electronic communications, information systems and signals intelligence technology to the defense and security sectors.
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