Investment in defence stocks has seen a notable surge recently, yet many portfolios have missed this trend, including those focused on the UK market. One company gaining attention is Cohort PLC (LSE:CHRT), which operates outside the FTSE 100 and FTSE 250 indices. Despite the company’s share price remaining lower than it was in January, there are indications that it may present a promising opportunity for investors before the end of the year.
Understanding Cohort’s Business Model
Cohort is not a single entity but a collection of smaller companies that specialize in critical areas such as surveillance, threat detection, and cybersecurity, rather than traditional defence machinery or weapons. This focus aligns closely with the UK government’s priorities, as highlighted in the 2025 Strategic Defence Review, which emphasizes these sectors as key areas for future investment.
Despite these strategic alignments, Cohort’s recent financial results were disappointing. The company’s earnings before interest and taxes (EBIT) are expected to fall below last year’s robust figures. Nevertheless, Cohort has maintained its guidance for full-year revenues of £291 million and EBIT of £35 million, making its current market value of £523 million appear attractive to some investors.
Cohort’s business model involves acquiring smaller firms and providing them with the necessary resources to expand and enter new markets. This decentralized approach allows subsidiaries to operate efficiently and respond swiftly to customer needs. While this strategy can introduce risks, such as potential oversight issues, it also fosters agility, which is essential in a rapidly evolving industry.
Potential for Outperformance in Defence Sector
Cohort’s strategy mirrors successful models employed by other UK companies like Halma and Diploma, both of which have excelled in the FTSE 100 over the past decade. This approach to growth through acquisition, combined with anticipated increases in defence spending, positions Cohort well for future performance.
While no investment strategy is infallible, Cohort has a track record of making sound acquisitions. Its size enables it to pursue opportunities that may not attract larger private equity firms, potentially leading to significant growth.
The company’s share price has experienced a decline since the middle of the year. Previously trading near £18, the stock now hovers around £12. For potential investors, this shift may present a more favorable entry point. If the stock remains at these levels come December, many will consider adding it to their investment portfolios, particularly in Stocks and Shares ISAs.
Cohort stands out among UK companies focused on acquiring and growing businesses, making it a compelling option for investors looking to capitalize on the evolving landscape of defence and cybersecurity. As the sector develops, Cohort’s strategic positioning could yield significant returns in the coming years.
