When CHRT hit my sale price target earlier this year I reviewed the business and sold a bit over a third of my holding. I held the remainder awaiting the next set of company results as I was hoping to see a continued improvement in the business.
It was a mistake on my part.
I did a few months ago meet a corporate financier who had worked for the vendor on one of Cohort's more recent acquisitions. I was looking to hire them for some work I was involved in. At the end they felt it was too small for them, but I was able to have a discussion on the perception of Cohort. (This was after the company had began to worry with the EID deal being on/off delayed). The opinion of the management team was that whilst it had patches of excellence it lacked depth. Also the head office team was too small for all the things it was trying to do and as such it had taken longer than needed to get the deal done. These time pressures had also meant that whilst the price paid was not unfair Cohort had given on issues it might have negotiated better if it had not been in such a rush to get on too the next thing.
That said historically CHRT had delivered well for me but for the last few months I have considered it with a more questioning eye. An eye that has been irritated on an ongoing basis over the acquisition of EID in Portugal. This has been an on again, stopped again, started again muddle from it first becoming public news. I attended a presentation by the FD were he suggested that it was very much down to the difficulty of dealing with a Government, but I do wonder if CHRT should not have some experience of dealing with a government - given its customer base, and how much of the problems were of CHRT's creation given the warning I had from the financier as to how they operated.
I am not impressed with the results for the year ending 30/04/16
-The Organic growth rate is only just over 4% and there is a material deterioration in margins in some of the units. With warnings of further deterioration in margins in other units.
-The Order book has decreased substantially, though management suggest this is principally a phasing issue.
- Much reliance is being put on reoccuring orders making up current order books. I am not sure the MOD will have funds given both the need for border security, better intelligence and cuts arising from Brexit.
- Issues in SCS, (and other parts of the group), have not been resolved.
- GAAP profits have fallen and whilst I can understand management's adjusted numbers, and am not completely adverse to the logic, I think they flatter, possibly significantly.
- I am not a fan of a lot of adjustments to GAAP figures even when I agree with them and in the case of CHRT there are some big adjustments.
-In the case of some of the adjustments I do disagree with them. I think they are plain wrong.
- Cashflow is expected to worsen.
- By the FD's own admission CHRT has had limited success selling outside the UK to other Nato purchasers. He gave this as a partial rationale for the EID deal, as EID had sold around europe. As such it is hard to see where organic growth comes from for much of the business.
I could go on but have to go to a meeting, but wanted this out for readers. (I may update it in a few days if I have more time). I did see one review from the Motley Fool UK this morning saying buy CHRT so as always DYOR
On top of the actual results I attended on the evening of the results an investor presentation organised by Equity Developments at which the FD of CHRT spoke. I haven't been to many of these presentations but it was the first one where I concluded the presenter thought we were children and seemed to be filling his allotted time with fluff rather than addressing the numbers. I have some doubts about meeting management as they usually seem to be promoting the stock regardless. But this is the first time I have seen one where it has been lets not discuss the numbers we put out today, lets discuss the security clearances of our staff as that is sexy spy stuff. I did look for the FD after the event as I did want to discuss the results but I could not find him. I presume he had left the building.
I have not completely closed my position as of the time of writing as the broker could not sell the whole lot at a sensible price. He did clear over half of it. But at the moment the residue is a lot nearer the exit than it was last week.