Jefferies has reiterated its buy rating and 230p target price for defence technology group Cobham, saying that the firm's full-year results appear 'robust and encouraging'.
Jefferies says that if worst comes to worst, Cobham's strong balance sheet and cash flows gives it scope to reduce the dividend cover or to do further share buy-backs. "We believe that Cobham will ultimately strike a balance between investing for future growth, bolt-on acquisitions and a return of capital to shareholders. We sense that sentiment towards Cobham remains quite negative, but that could change rapidly, in our view."
Commenting on the results and outlook, John Devaney, Executive Chairman, said:
"We have achieved modest organic growth in our core businesses and 13% underlying EPS growth at constant translation exchange rates, driven by efficiency savings from the Excellence in Delivery programme and good cost control. Conditions in our markets, including the positive trend in our export and commercial markets are expected to continue in 2012. The Board expects to achieve some underlying progress this year, before the full year net impact of the Analytic Solutions divestment and the share buy-back.
"We have made significant steps towards focusing the portfolio on markets where we have technical differentiation and leading positions and we have received some very important, long term awards, building on our attractive market positions. Excellence in Delivery has achieved real operational improvements and better-than-expected efficiency savings and we have a strong balance sheet and a highly cash generative business model, giving us the flexibility to examine attractive acquisition opportunities and increase shareholder distributions. The US Government has confirmed defence and security priorities that favour Cobham and has made some progress in reconciling these to budgetary imperatives. The continued delivery of the strategy gives the Board confidence that we will continue to make progress over the medium term."
Group order intake increased 16% at constant translation exchange rates, with book-to-bill of 1.10 times, including important multi-year KC-46A, KC-390 and SATCOM awards
· Modest organic revenue growth4 in core businesses (excluding the divested Analytic Solutions), with a strong performance in commercial and non US defence/security markets, together representing 56% of revenue
· Underlying EPS growth of 12%, or 13% at constant translation exchange rates
· Run rate of annualised Excellence in Delivery savings at the end of 2013 is now expected to increase from £65m to £75m, at unchanged cost of £131m
· Excellent free cash flow3 of £288m, with strong operating cash conversion of 95%
· Recommended full year dividend increase of 33%, underpinned by strong earnings and cash generation
Cobham Awarded US $16.9 Million US Navy Contract for AN/ALQ-99 Low Band Transmitters
LANSDALE, Pennsylvania -- Cobham has been awarded a US $16.9 million contract from the US Naval Air Systems Command (NAVAIR) to manufacture the AN/ALQ-99 Low Band Transmitter-Antenna Group for US Navy and Marine Corps EA-6B and E/A-18G electronic warfare aircraft. The new contract continues funding for a fourth full rate production lot, bringing the total number of production transmitters ordered to 233 of 315 required. To date 157 transmitters and 323 antenna products have been delivered. The contract's initial award procured 60 Low Band Transmitters and an associated number of antenna assemblies in a variety of configurations.
The AN/ALQ-99 Low Band Transmitter-Antenna Group (LBT-AG), developed by Cobham Sensor Systems, has been in production since 2005. The LBT is designed to protect strike aircraft, ships, and ground troops by disrupting enemy radar and communications. It is flown on US Navy EA-6B Prowler and EA-18G aircraft and Marine Corps EA-6B aircraft, and has been used in combat operations.
This award continues a long tradition of Cobham support to the Navy's mission success in harm's way. Cobham's support to the Navy extends beyond Airborne Electronic Warfare. The Low Band Transmitter complements other ALQ-99 work, to include Next Generation Jammer, the Next Generation Airborne Electronic Attack study, and the fleet's Integrated Topside (InTop) and Surface Electronic Warfare Improvement Program (SEWIP).
The original base firm fixed price contract was competitively procured. Deliveries will continue immediately beyond the currently contracted Full Rate Production Lots, and are expected to continue through 2014. The contract also allows for up to three more annual options to procure the balance of LBT-AG systems.
Cobham, the aerospace and defence group, is an innovative company working in a difficult market, according to the Investment Column in the Independent. Best known for its heavy aviation engineering, the company produces pipes and other devices for the oil tankers used to refuel the RAF aircraft flying to Libya and the bomb racks used in Boeing's F15E jets. Yesterday, it agreed to buy California's Trivec-Avant Corporation, a maker of satellite antennas for transport and logistics companies, for $126m (£80m), with an additional payment of up to $18m if it performs really well. It also announced a new $60m contract to supply an aerial refuelling pod for the KC-390 tanker aircraft being developed by Brazil's Embraer. Overall, Cobham appears to be doing everything right and its first-half results were encouraging. The trouble, however, is that about 70 per cent of its sales come from military customers at a time when many countries, including Britain and the US, are significantly cutting budgets as part of severe austerity programmes. Hold, says the Independent.
Following the selection announcement, Iain Gibson, vice president of Cobham Mission Equipment said: "Cobham Mission Equipment is delighted with its selection by Embraer and the Brazilian Air Force to provide the wing air refuelling pod solution for the KC-390 following a rigorous competitive tendering process. This is an important and significant programme with a new customer and provides a platform for Cobham to further grow its business in Brazil. It also serves to underline Cobham's position as the world leader in providing air to air refuelling systems. We are confident that the wing pod solution for the KC-390, the basis of which has been designed and qualified to the latest and most stringent military requirements, will provide an optimum solution for the KC-390."
Cobham Wins US$60m Initial Contract from Embraer to Provide Aerial Refuelling Systems for Brazilian KC-390 Tanker Aircraft
WIMBORNE, United Kingdom - Cobham has been selected to develop and supply the Wing Aerial Refuelling Pod for the KC-390 tanker aircraft under development by Brazil's Embraer and has received an order with an initial contract value in excess of US$60 million. Air refuelling operations will be a key tactical role of the KC-390 following its introduction into service, scheduled to commence in 2015.
Selection by Embraer follows a comprehensive competitive process and reflects Cobham's unrivalled experience in the design, development and delivery of air refuelling systems. Cobham will supply Embraer with one of its state-of-the-art air refuelling pods, specially modified to fit the KC-390. The system architecture will be tailored to meet the aircraft's air-to-air refuelling capability requirements, and enable refuelling of a range of fixed and rotary-wing aircraft.
Embraer's launch customer for the KC-390 is the Brazilian Air Force and it expects to secure significant additional orders from export customers.
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