Good morning! Defence contractor Cohort (LON:CHRT) has published its interim results to 31 Oct 2013. This is a company that I liked earlier this year, when it was below 150p, but the price has since re-rated to a level where it's probably fairly valued. Bear in mind that the nature of their work (e.g. supply of communications equipment to the Astute class submarines) is bound to be lumpy, as large contracts come and go. Therefore I would always be wary of the likelihood of a sharp reduction in profits. For that reason it seems to me that the forward PER of 12.7 is probably high enough a rating.

As you can see from the graphical history below, EPS has really shot up in the last two years, so if profits fell back to 2010-2011 levels, then the share price would be much lower than the current price of 214p, which factors in EPS holding up above 15p.

The PER chart has been thrown out of kilter by a spike in 2012. I wonder if they could be adjusted to use a logarithmic scale, which might help soften such spikes? Or perhaps they could be adjusted to allow extreme spikes to go off the page?

Their interim results today are quite soft in profit terms - adjusted operating profit is down 45% to £1.8m (2012: £3.3m), with adjusted EPS down from 6.97p to 3.97p. The phrase "as expected" is used, but I'm not sure whether investors will have been expecting such a sharp fall in profit? So we could see a wobble in share price today if they were not prepared for earnings falling.

However, the outlook is more positive - with order intake up 20% at £35.7m, taking the total order book up to £98.2m, of which £25.5m is deliverable in H2, together with "encouraging" prospects for further order intake in H2. The key part of the outlook statement says;


The second half of this year is already well supported by the October order book and recent contract wins and we expect a much stronger performance than in the first half.

On balance we expect that Cohort will continue to make progress in the current financial year and beyond.


Generally speaking I very much dislike situations where a…

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