Intrinsic Value Cohort plc (CHRT.L)

• Previous Close: £1,152.00
• Intrinsic Value: £808.25
• Upside potential: -30%

Stock Valuation Context

Business Model And Market Position

Cohort plc operates as a specialized defense and security technology provider, delivering advanced solutions across land, maritime, and air applications. The company’s core revenue model is built on high-value, long-cycle contracts for electro-optical systems, communications technology, and electronic warfare support, serving government and commercial clients. Its subsidiaries, including MASS, EID, and SEA, focus on niche segments such as naval command systems and tactical radio networks, reinforcing Cohort’s position as a mid-tier player in the European defense ecosystem. The firm differentiates itself through integrated offerings like C4ISTAR (command, control, communications, computers, intelligence, surveillance, target acquisition, and reconnaissance) and cybersecurity services, which cater to evolving military and civil security needs. While competing with larger defense primes, Cohort maintains agility and deep domain expertise, particularly in the UK and Germany, where it benefits from stable defense budgets and partnerships with national agencies. Its diversification into adjacent markets, such as digital forensics and oil/gas security, mitigates reliance on pure defense spending.

Revenue Profitability And Efficiency

Cohort reported revenue of £202.5 million for FY 2024, with net income of £15.3 million, reflecting a net margin of approximately 7.6%. Operating cash flow stood at £23.0 million, supported by disciplined working capital management. Capital expenditures of £6.7 million indicate moderate reinvestment needs, aligning with its asset-light service and integration focus. The company’s profitability metrics are consistent with its mid-tier defense niche, balancing R&D intensity and contract-based revenue streams.

Earnings Power And Capital Efficiency

Diluted EPS of 38p underscores Cohort’s ability to convert contracts into earnings, though cyclicality in defense procurement poses variability. The firm’s capital efficiency is evident in its cash conversion cycle and low leverage, with total debt of £40.5 million against cash reserves of £55.2 million. Its beta of 0.151 suggests lower volatility relative to broader markets, typical of defense contractors with stable government backing.

Balance Sheet And Financial Health

Cohort maintains a robust balance sheet, with net cash (excluding debt) of £14.6 million, providing flexibility for organic growth or acquisitions. Debt-to-equity metrics remain conservative, and liquidity is sufficient to cover near-term obligations. The company’s financial health is further supported by its ability to generate consistent operating cash flows, which totaled £23.0 million in FY 2024.

Growth Trends And Dividend Policy

Growth is driven by geopolitical demand for modernization, with backlog visibility from multi-year defense contracts. The dividend per share of 15.35p reflects a payout ratio aligned with earnings retention for strategic investments. Cohort’s focus on high-margin services and international expansion (e.g., Portugal, Africa) offers incremental growth levers, though revenue cyclicality persists.

Valuation And Market Expectations

At a market cap of £698 million, Cohort trades at a premium to pure-play defense peers, likely reflecting its niche expertise and cash flow stability. Investors appear to price in steady mid-single-digit revenue growth and margin resilience, though reliance on UK/EU defense budgets warrants monitoring for fiscal policy shifts.

Strategic Advantages And Outlook

Cohort’s decentralized subsidiary model fosters innovation and customer proximity, while its focus on C4ISTAR and cybersecurity aligns with global defense priorities. Near-term risks include supply chain delays and budget austerity, but its diversified client base and recurring service revenue provide a buffer. The outlook remains cautiously positive, hinging on contract wins and cross-selling synergies.

Sources

Company filings, London Stock Exchange disclosures