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Cohort (LSE:CHRT), the defence technology group, is a UK growth stock that’s just reported its results for the year ended 30 April (FY25).
Compared to the previous year, these showed a 33% increase in revenue to £270m and a 30% rise in adjusted operating profit to £27.5m. The group’s order book is now worth £616m.
On the day (16 July) this information was released to investors, its shares soared 13.5%.
But that was also the day on which the group’s chairman, chief executive and finance director — along with some of their close associates — sold a combined £9.76m of shares. The company’s stock’s now changing hands for less than before its impressive results were released.
What’s going on?
A partial exit
To be fair, you can’t spend shares. And if you’ve invested time and money helping to build a successful business, I don’t think it’s unreasonable to ‘cash out’ at some stage. All three have been involved with the company since it floated in 2006. But they haven’t exited entirely. They still retain a combined 3.7% shareholding.
However, the timing’s unfortunate. Admittedly, there are restrictions as to when a company’s directors can buy and sell shares. But some might interpret the move — the day on which the group announced its best-ever year — as a suggestion that its financial performance has peaked.
But I think this is wrong.
In vogue
That’s because, as depressing as the reasons are, the defence sector’s booming at the moment. NATO members have pledged to spend 5% of their national incomes on their armies, navies and air forces by 2035. More immediately, the British government’s announced it plans to increase its spending to 2.5% of Gross Domestic Product from April 2027.
It’s often said that the first duty of a government is to protect its citizens. Additional military spending is one element of this.
And Cohort’s one company that’s likely to benefit. During FY25, it reported adjusted earnings per share (EPS) of 54.44p. Analysts are expecting relatively modest growth in FY26 of 4.3% to 56.76p. Thereafter, the pace of increase is forecast to pick up – 64.85p (FY27) and 69.80p (FY28). If these estimates prove correct, EPS will grow by an average of 8.6% a year over the next three years.
Not cheap
But with a share price of around 1,445p, the stock’s trading on an expensive 25.5 times forward (FY26) earnings.
This could explain why the average 12-month price target’s 1,570p – ‘only’ 8.7% above its current level. However, as a relatively small company – its market-cap’s around £750m – only three brokers are covering the stock. Their targets are 1,200p, 1,570p and 1,750p respectively. This wide divergence of views isn’t particularly helpful.
My thoughts
But it seems to me that the group’s going in the right direction. It’s certainly operating in a sector that’s growing. It has some visibility on its order book until the mid-2030s and it’s always on the lookout for acquisition opportunities. And despite buying other companies in recent years, it retains a net cash position.
Although it’s never a good look when insiders decide to sell, there doesn’t appear to be anything fundamentally wrong with the group. On this basis, those comfortable with the defence sector could consider adding the stock to their portfolios.
