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Cohort: a growth defence firm Cohort plc is a group of four technology companies, each centred on the defence industry. Cohort is dividend paying, with a strong balance sheet to support further acquisitions. From its headquarters near Reading, Cohort made around £70m of sales in the year to April 2014 and a profit before tax of £8.3m. The company’s four divisions are: MASS, Marlborough Communications (MCL), SCS and SEA. Responsible for more than half of the order book at year-end (£46.4m of £82m), MASS is a technical consultancy, primarily operating around electronic warfare, secure information systems and data management. The company services the full life cycle, from design through to system integration, support and training. There is a split in the value of its services, with defence export work being higher margin than education.

fifth time in six years that Cohort has increased its dividend SEA delivers systems, software and electronic engineering services to government and industry. The company’s biggest activity is servicing the UK submarine flotilla. Here, SEA might be contracted by a firm such as Babcock to deliver the required electronic units for a submarine’s communications systems. SEA is

scheduled to deliver £25m of Cohort’s year-end order book. SCS is an advisory business. Their principal customer is the MoD. Its key expertise is what it terms ‘capability integration’. In July 2013, the division won a £4.1m contract with the MoD to manage the integration of the new F-35 into the Air Force. SCS is responsible for around one eighth of the year-end order book, making it the smallest of the four divisions.

defence ministries take great care over who they work with Cohort announced results for the year to April 2014 at the end of July. The group made sales of £71.6m, flat on the previous year. Adjusted profit before tax came in at £8.3m, up from £7.5m. Total dividends for the year were 20% ahead of the previous year. This was the fifth time in six years that Cohort has increased its dividend, with one modest cut in that period. The company’s balance sheet strength is impressive. Current assets were more than twice total liabilities, leading to a ‘net funds’ position of £16.3m. MCL was purchased for a maximum of £8m in July, two months after Cohort’s year-end. The company is a supplier of electronic communications and surveillance technology. End uses

of MCL equipment include unmanned aerial vehicles and submarines. The deal is expected to be immediately earnings enhancing.

principal customer is the MoD Sensitive organisations such as defence ministries take great care over who they work with. Cohort has brought together a collection of companies that is successfully selling to customers that are famously reliable payers and work to long-term goals. While contract delays and cuts are always a risk, Cohort has a broad range of services under its umbrella and a commendable track record. A double-digit dividend increase is forecast for 2015. Strong sales growth is expected this year and next. According to Stockopedia, Cohort shares are selling on a 2016 P/E of 11.4, with the prospect of a 2.8% yield. Cohort (LON:CHRT) FOR High quality customers Strong balance sheet AGAINST Valuation uncompelling Acquisition integration risk Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£82m 193p:203p 11.9 2.5 160p:225p


September 2014 AIM Prospector  
September 2014 AIM Prospector  

Featuring five AIM-quoted companies: Belvoir Lettings, Bonmarche, Cohort plc, Plus500 and Rotala.