Ever since the ‘Peace and Love’ era of the 1960s, campaigners have argued that if Western defence companies did not exist, the world would be a less war-torn place.
Russia’s brutal invasion of Ukraine suggests otherwise. Ukraine is doing its utmost to rebuff Putin’s advances and President Zelensky’s efforts have been given a massive boost by Western military aid, including state-of-the-art equipment and technology from the UK.
Cohort is a small, independent UK defence company, which prides itself on producing some of the most sophisticated kit in the world. The shares were above £6 late last year, but they have fallen back to £5.29 following lacklustre interim figures last December.
On alert: Cohort’s military skills come into their own when crises such as the Ukraine war erupt
The current price represents a buying opportunity. The problems that caused poor results at the half-year have been addressed, the company’s order book is stronger than ever and prospects are bright.
Chief executive Andy Thomis is 57 and has spent his entire career in defence. He started at the Ministry of Defence, worked in industry for many years and founded Cohort with fellow defence experts Nick Prest and Stanley Carter in 2006.
Prest is still chairman of Cohort, Carter is a non-executive director and Thomis moved up from finance director to his current role in 2009. This long tenure is unusual on the stock market, but it means Thomis and his fellow founders have an unparalleled understanding of their business, not just what it does but why it matters.
Many defence companies are large, bureaucratic and slow-moving. They work in a complex sector, they make huge pieces of equipment, and decisions take a long time. Cohort is designed to be different.
Headquartered just outside Reading, the firm owns six businesses, each of which specialises in high-tech, niche areas of defence. Customers include governments and big defence companies, and contracts can range from a few million pounds to £50million or more.
Just under half the group’s revenues come from the Ministry of Defence and UK-headquartered firms, such as BAE. But Thomis also works with a range of European, Middle Eastern and South East Asia customers, from the French government to the Philippine navy. Cohort’s largest subsidiary, Mass, sets up systems on board ships and military aircraft to defend them against attack. It provides customers with cyber defence technology and sets up huge training exercises, where the Armed Forces and government officials practise dealing with disasters.
These sorts of programmes come into their own, when crises erupt – the UK’s swift response to the invasion of Ukraine, for example, can be attributed at least in part to having practised similar manoeuvres in the past.
Two other businesses, SEA and Elac, specialise in underwater radar systems and other devices designed to detect enemy craft. This technology is increasingly in demand, as China beefs up its presence at sea. The Chinese navy has tripled in size over the past two decades and is now the largest in the world – a move that has spooked neighbours in the region, many of which have become Cohort customers.
MCL supplies advanced surveillance technology while EID delivers communication kit, from handheld radios and intercom systems to complex equipment for major warships This is one of the companies that has held Cohort back in recent months, as contracts took longer than expected to come through.
The other division that fell short was surveillance specialist Chess. The business was growing rapidly until last year, when it failed to complete some orders on time, even as others were delayed. Thomis has taken swift action. A new managing director has been installed, the senior team strengthened and the firm should return to growth mode this year.
The rest of the group is expected to make progress, too. Thomis reports figures to April 30 later this week and sales of £140million are forecast alongside £14.6million of profit.
Both are down from 2021, but this is the first decline since the company was founded and a bounce back is expected in the current year, with sales increasing to £164million and profits to £17.8million.
Brokers are also confident about the business, pencilling in a 10 per cent increase in the dividend to 12.2p for the year just ended, rising to 13.4p in 2023.
Midas verdict: Thomis sees Cohort’s mission as ‘keeping people safe’, which seems particularly apposite as Russia and China flex their military muscles. In such a climate, the West needs smart, innovative defence companies to keep ahead of the game and ensure that democratic nations can protect themselves. Cohort is one of those businesses and the recent blip makes the shares a bargain, at £5.29. Buy.
Traded on: AIM Ticker: CHRT Contact: cohortplc.comor01189090390
