In the good old days City analysts used to get decent 6 figure salaries for writing non performance related pieces, largely to get publicity for the companies they work for. These days they have been rendered useless by the internet and now social media. However, the need for publicity remains – hence you see reams of boring commentary copy and pasted on FTSE Alphaville to fill out space, and quoted elsewhere.
From the various brokers below we realise that Cobham has been a total dog for several years, is at the top end of conventional ratings metrics, and that a fresh profits warning could still be on the cards at any moment.
This suggests that the latest speculative rumours surrounding the company here could be a sign of a disposal, or interest from a mystery buyer. But just as easily be a bear ramp – of the kind seen at Carillion or Gemalto. Having read the broker notes one would probably want to err on the side of caution, even though if the rumours here are sound.
Berenberg: May 2017
Having extolled the apparent virtues of Cobham on Friday, it seems only fair to look at what the “experts” have said about this aerospace / defence specimen? For instance, Berenberg came up with the sexed up title “Billion Pound Baby”, but then the actual analysis of the stock only being a “Hold” is something of a damp squib. This is despite the way that the company is trading in the wake of a “transformational deal” of as much as £1bn in 2014. Indeed, Berenberg pointing out that at 134p the stock is trading at a 25% premium to its peers is undeniably a downer, as is the 120p price target. The only way one would be able to quibble too much with such analysis as a bull would be to suggest that Wall Street Wires of M&A speculation surrounding the stock explains the premium rating, as well as allowing for fresh upside.
Liberum: August 2017
Ben Bourne at Liberum suggests that the fundamentals at Cobham appear “suitably sandbagged” something which we agree with. This idea is helped along by the improved recent perception of the defence sector, a state of affairs which has clearly improved since Kim Jong-Un’s attempt to stay in power / die on the job, by starting WWIII. As far as the view on Cobham’s rating is concerned, this is regarded as being on the rich side, something which is acknowledged without the alleged M&A angle. Nevertheless, the broker highlights the recovery angle here – something which the rating is factoring in, as well as the probability of a £200m windfall from any sale of Wireless and AvComm.
JP Morgan Cazenove: August 2017
It could be said that this broker note from early last month is the best of the bunch in terms of the dovetail with the Wall Street Wires perspective. In particular, what is most pleasing is the postive anticipation of the strategic review and in tandem with this the internal changes which have been put in place. These centre on the company being more customer facing, and new SID John McAdam. Perhaps the juiciest part of the note though, appears in the Investment Thesis, Valuation and Risks section. Here the broker focuses on upside from new US defence contracts, while the Middle East suffering a falling crude oil price would clearly be a negative. Otherwise, faster debt reduction and disposals than expected would be helpful drivers. Most positive of all, JP Morgan suggests that given Cobhams strong position in niche markets, it cannot rule out a bid for the company. This seems to be a very sensible conclusion.
Societe Generale: March 2017
Although it cannot be denied that SG’s “Sell” on Cobham is a rather definitive negative as far as appraisals are concerned, optimists may suggest that the intervening 6 months may have tempered their stance, as well as the fundamentals. This is especially the case in the wake of the latest missile machinations, and given the way that SG was looking for a “gradual” improvement from the aerospace / defence group. That said, SG were suggesting a fresh profits warning for 2017 could be on the way despite the company’s financial position being bolstered by the £500m rights issue. From a M&A perspective SG’s noted how Cobham could be attractive to a buyer, with a break up value of 100p – 140p. The problem though, is that the diversity of the business means that it is actually rather difficult to work out who any bidder might be.