Cohort, floated on AIM in March 2006 at 123p, is a cash-generative and dividend-paying counter on a consolidation mission in the fragmented defence technical services market.

Offering technical advice and services to clients including BAE Systems and the MoD, recent interims to October caught the eye, even though the second half-year is stronger.

Pre-tax profits were lifted 42% to £1.5m, on revenues up 55% to £20.9m, with original business SCS posting 30% sales growth to £12.7m, though flat profits at SCS reflected programme ‘slippage’ and investment spend. Contributing £8.2m to turnover and £900,000 of operating profit was maiden acquisition MASS, a defence and aerospace systems house bought in August 2006 for up to £13m with skills in managed services, electronic warfare and secure communications.

Meanwhile, systems engineering and software business SEA, acquired on 31 October for a maximum £25.4m, operates mainly in the defence sector yet also boasts divisions focused on the space, transport and offshore sectors. SEA boosted the group order book by £13.7m to £56.1m, of which almost £23m is deliverable in the stronger second half. The acquisition means that Cohort has reached a degree of critical mass, leaving it well placed to win bigger contracts both domestically and in export markets.

For April 2008, analysts see profits growing from £3.2m to £5.6m, with earnings rising to 11.9p (8.9p), placing the shares on a fairly undemanding forward multiple of 13.5. Cash generative, dividend paying (the interim dividend was increased by 12.5% to 0.45p) and on an intriguing consolidation mission, Cohort could prove a winner long term.

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