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Cobham – ANOTHER profit warning, though still worse to come?

By Steve Moore | Wednesday 11 January 2017


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Aerospace and defence group Cobham (COB) has released a “Post-close Trading Update”, with the shares currently around 15% lower, at 140p, in response. Uh-oh.

For the 2016 calendar year, the update notes “group trading profit in the unaudited draft management accounts… is £245m, below the range of £255m to £275m set out in the trading update of 24 October 2016”. By that “trading update”, it means profit warning – and there could be worse to come as;

“The detailed year end close and audit is ongoing… The new management team is commencing a thorough closing balance sheet review, including major contracts and asset carrying values. The trading profit disclosed above is before any adjustments that may arise from this review and, in particular, there is significant uncertainty surrounding the outcome of the KC-46 tanker programme. Cobham remains in discussions with its customer on the commercial terms for the complex conformity and qualification phases of this contract.”

Worse still, then noted is “higher than expected net debt… the group's draft managements accounts indicate net debt at 31 December 2016 of £1.03bn”. Together with the self-admitted “disappointing trading”, this sees that “the board will not be recommending a final dividend payment in respect of financial year 2016. The dividend policy for 2017 and beyond will be set out following a full review of the group's financial situation”.

This is being undertaken with a new CEO and new CFO in place - raising the question of what their fresh perspectives will find. With a market cap here still of circa £2.4 billion and significant uncertainties, I currently consider this a bargepole stock.


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