Morningstar | New Morningstar Analyst Report for Cobham PLC
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, we believe the next step should consist of asset disposals to reduce managerial complexity and to strengthen the firm’s balance sheet. Airplanes' economic life spans can amount to 25 years or more, and aircraft manufacturers prefer to team up with well-funded suppliers to guarantee good service over this period. The strategic review as announced in June 2017 resulted in a sale of the group’s nonmoaty units, wireless and AvComm. However, we would like to see further streamlining of the portfolio and improved financial controls. The synergies of business units such as aviation services and semiconductor solutions are limited, and a reduced, 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.Cobham provides technologies and services across its defense, aerospace and space markets. Co. has four sectors: Communications and Connectivity, which provides equipment and solutions to enable connectivity across a range of environments in aerospace, avionics, satellite and radio, wireless and mobile connectivity markets; Mission Systems, which provides safety and survival systems, aerial refueling systems and wing-tip to wing-tip mission systems; Advanced Electronic Solutions, which provides solutions for communication on land, sea, in the air and in space through off-the-shelf and customized products; and Aviation Services, which provides outsourced aviation services.
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