Saab handed Cohort its biggest new catalyst, but CHRT investors are asking a harder valuation question

Cohort plc (AIM: CHRT) secured one of the most financially significant contracts in its recent history on August 14 when German subsidiary ELAC won a €140.7 million order from Saab AB to provide integrated sonar systems for Poland’s Orka submarine programme. Work began immediately, with deliveries scheduled to continue into the mid-2030s, and Cohort said the programme should enhance adjusted earnings per share from the following financial year onward.

The original market response was positive. Cohort shares climbed 6.07% on August 14 to close at 1,434p after trading as high as 1,452p. What makes the story more interesting several weeks later is that the shares subsequently retreated, trading around 1,124p by September 11 despite the contract remaining intact.

How material is the €140.7 million Saab contract relative to Cohort’s existing business?

Cohort reported FY26 revenue of £306.4 million and a closing order book of £618.8 million. Depending on exchange rates, the €140.7 million contract is roughly equivalent to around £120 million, which would amount to close to 40% of FY26 revenue and roughly one-fifth of the year-end order book. The comparison is approximate because the contract is euro-denominated and will be recognised over several years, but it demonstrates why the award is strategically material.

The long delivery schedule is equally important. Revenue will not arrive in one reporting period; deliveries extend into the mid-2030s. That gives Cohort multi-year visibility but limits the usefulness of treating the headline contract value as an immediate earnings addition.

Cohort entered the contract from a strong operating base. Revenue rose 13% in FY26, adjusted operating profit increased 32% to £36.3 million and adjusted earnings per share improved 14% to 61.9p. Order intake reached £314.2 million while the closing order book remained above £618 million.

Why does the Polish Orka submarine programme matter strategically for Cohort and ELAC?

The contract positions ELAC inside a long-duration European submarine programme alongside Saab, providing integrated sonar systems rather than a short-lived equipment delivery. Submarine sonar is a technically specialised market with high qualification barriers, lengthy procurement cycles and long support requirements, which can make programme positions strategically valuable once secured.

For Cohort, the award also strengthens the Sensors and Effectors division and extends the group’s exposure to the European defence-spending cycle. The company already operates across communications, electronic warfare, satellite communications, surveillance and naval technology through businesses including ELAC, SEA, EID, MASS, MCL and EM Solutions.

The contract therefore adds backlog in an area where Western defence budgets are being redirected toward naval capability, underwater surveillance and fleet modernisation. However, investors still need to consider execution risk because multi-year defence programmes can experience scheduling changes even when the ultimate customer requirement remains intact.

Why have Cohort shares fallen below their pre-contract level despite the order win?

Cohort closed at 1,352p on August 13 before jumping to 1,434p on the contract announcement. The shares subsequently declined through the second half of August and early September, reaching roughly 1,124p by September 11. In other words, the initial 6% contract rally was not merely reversed; the stock fell materially below the level prevailing immediately before the announcement.

That does not mean the market has decided the Saab contract has no value. Share prices reflect the entire valuation, including expectations already embedded before an announcement, profit-taking, defence-sector sentiment and the timing of earnings recognition. Cohort had traded as high as 1,530p during the preceding 52 weeks, so the August contract arrived after a strong longer-term period for the stock.

The subsequent decline creates a different investor question from the one that existed on August 14. At the time, investors were deciding how much to reward a large contract. Now they can ask whether the fall has created a more attractive valuation for a company with record revenue, higher profit and an order book exceeding twice annual sales.

Does Cohort’s order book provide enough visibility to justify renewed investor interest?

The £618.8 million FY26 closing order book was equivalent to roughly two years of trailing annual revenue before including the new Saab award, although delivery schedules vary and that simple ratio should not be interpreted as two fully contracted years of identical revenue. The order book nevertheless provides substantial visibility compared with companies dependent on short-cycle sales.

Management has also maintained a long record of dividend growth. The FY26 total dividend increased 10% to 17.9p per share, continuing increases in every year since Cohort’s 2006 AIM flotation. Net funds stood at £2.2 million at year-end, meaning the company entered its latest programme wins without a heavily leveraged balance sheet.

There is therefore a legitimate tension in the current investment case. The operational indicators are strong, defence demand remains supportive and Cohort continues securing large export orders, yet the shares have materially derated from their 52-week high. Whether that gap becomes an opportunity depends on execution, margins and how quickly the expanding order book converts into earnings and cash.

For investors who missed the August contract, that may actually make the story more useful now. The easy announcement-day trade has passed. What remains is the harder question of whether a profitable defence-technology group with a growing backlog deserves to recover the valuation that the market has recently taken away.