Cohort held in check by Chess

  • Chess revenue was £9m below expectations
  • The dynamism of the defense market leads the board of directors to propose an increase in the dividend

Defense Technology Group Cohort (CHRT) saw its shares fall 12% after announcing mounting losses triggered by the poor performance of the two companies acquired over the past five years.

Although the company posted a record order book of £289m, its half-year loss widened as its fire monitoring, tracking and control software arm, Chess, posted an operating loss of £2.7 million (compared to a profit of £308,000 in the same period). last year) as revenue nearly halved to £5.9million.

Revenues from Chess, which was bought three years ago, were £9m below management’s expectations. Cohort chief executive Andrew Thomis attributed around £3m to internal issues that had caused production and engineering delays, £2m to lower-than-expected orders and £4m sterling to customer-driven schedule delays.

He argued that Chess’ problems could be solved, as they were about consistency of delivery, performance, and resource management, as opposed to its technology or customer acquisition. Chess founder Graham Beall has moved into a business development role in the US and a new general manager, operations manager, technical manager and project manager have been appointed.

EID, its Lisbon-based communications systems producer acquired in 2016, also posted an operating loss of £489,000, compared to a profit of £329,000 in the corresponding period last year, as revenue fell. fell 44% to £2.6million.

However, other divisions performed well and its cash flow remained positive – it ended the period with net cash (excluding leases) of £6.1m.

We are moving our recommendation to hold the buy until there is evidence of improving Chess performance, which led broker Investec to cut its earnings per share forecast by 12%. full year, at 30p. Activity in the defense market remains buoyant, however, which has given Cohort’s board the confidence to propose a 10% increase in its half-yearly dividend to 3.85p.

Last Seen IC: Buy, 506p, July 27, 2021

COHORT (CHRT)
ORDER PRICE: 525p MARKET VALUE: £214 million
TO TOUCH: 514-526p TOP OF 12 MONTHS: 682p LOW: 481p
DIVIDEND YIELD: 2.2% P/E RATIO: 46
NET ASSET VALUE: 185p* NET DEBT: 3%
Semester to October 31 Turnover (£m) Profit before tax (£m) Earnings per share (p) Dividend per share (p)
2020 54.4 -0.37 0.25 3.50
2021 60.0 -1.71 -1.74 3.85
% cash +10 +10
Ex div: 06 Jan
Payment: 14 Feb
*Includes intangible assets of £63 million or 154 pence per share

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