EUR 850.00 For Business Accounts Only

Morningstar | Cobham Report June 2019

Cobham focuses on a wide range of niches in the defence, security, and commercial markets, such as communication products, pneumatic and actuation systems, nose-to-tail aerial refuelling systems, and military and commercial outsourced aviation services. After a string of profit warnings and another painful capital raising in May 2017, the firm completed the divestment of the group’s nonmoaty units, Wireless testing and Avcomm, during the first half of 2018. Even though we see this recent focus on portfolio optimization as positive, we still see room for improving the company’s business exposure. For example, the low margin Aviation Services and Semiconductors business units have limited synergies and lack competitive strengths. We believe a more focused portfolio would help management to better address the current wide-ranging strategic, operational, and cultural weaknesses. We believe Cobham is the most technically advanced supplier of aerial refuelling systems in the world, with over 2,000 aerial refuelling systems delivered to defence customers worldwide for fixed- and rotary-wing aircraft, including positions on each of the next-generation aerial refuelling tankers (KC-46A, A330 MRTT, A400M, and KC-390). Another strength of the firm is its sole-source supply position of radio and audio integrated management systems on all Airbus aircraft. Cobham will benefit from our expected upcycle of narrow-body aircraft deliveries, as it supplies its RAIM system for the A320neo aircraft family. As a result of end-market recovery, increased deliveries of aircraft with Cobham’s state-of-the-art air-to-air fuelling systems and RAIMS, and better integration of acquired assets, we expect improving returns over our five-year forecast period. However, given managerial complexity of the widely diversified portfolio and operational issues, we believe a no-moat rating is appropriate.