Cohort’s AGM statement indicates the current year has progressed well, with order cover of sales for the year rising to 76% following recent September orders compared to 60% at the same point of FY19. The order backlog at 31 August 2019 increased by over 10% since the year end to a record £210.9m (FY19 £190.9m) and the pipeline of potential business remains healthy. We maintain our earnings estimates, which means the shares are trading on an FY21e P/E of 12.6x, a significant and unwarranted discount to UK defence peers.
With stronger order cover for the year, management looks set to achieve its fullyear expectations. The recent five-year order for tactical radios worth €16.7m from the Portuguese Army provides a long-term element of domestic revenue for EID, but the focus remains on landing additional export contracts. There are also significant overseas prospects for the rest of the group, especially for Chess and in naval markets. As anticipated, there has been some unwind of the more positive than expected working capital position at the start of the year as customer advances are converted to deliveries. The result is that net debt at 31 August 2019 has risen to £12.9m (FY19 £6.4m). The company remains positioned to pursue further suitable opportunities should they arise following the successful acquisition of Chess in H219. Cohort will report H120 results on 12 December 2019.