Cobham punished for fresh warning

Despite a big boost from the ailing pound, Britain's engineers and electronics experts are having a rotten time. Little wonder, then, that Cobham just added to the string of third-quarter profit warnings in recent weeks, wiping half-a-billion pounds off its valuation.

The defence specialist certainly has form. It issued a red flag back in April alongside a rights issue to raise over £500 million, and said at its interims in August that "market and contract execution risks" remained. Hitting full-year forecasts hinged on a decent second-half.

It hasn't happened, and chiefs now expect full-year underlying operating profit, even aided by an foreign exchange tailwind, of £255-£275 million. That's well below the consensus estimate for £290 million and 15% lower than the £301 million analysts at JP Morgan had pencilled in.

Cobham chief Bob Murphy, who'll be replaced by Laird's David Lockwood by 1 January, blamed the shortfall on weakness at the maritime satellite communications (SATCOM) business.

He also flagged up cost overruns on space programmes at the wireless operation, where it's also struggled with bottlenecks in ramping up production. This is the business formed by the 2014 acquisition of Aeroflex.

There's also fresh uncertainty about Boeing's KC-46 aerial refueling and strategic military transport aircraft. It was given the green light to start production in August, but Cobham, which makes the hose and drogue refuelling system and body fuel tanks, is still going through US approval processes and thrashing out commercial terms with Boeing.

"While risks to the overall outcome of these discussions remain, it is anticipated that a satisfactory conclusion will be reached, although the exact timing of this cannot be determined," warned the firm, adding that cash receipts were likely to be affected through year-end.

While the City was rightly sceptical about guidance in August, Cobham shares still plunged almost a fifth Monday to less than 130p, a level not seen since the aftermath of the April warning.

Murphy reckons volumes will increase in some areas during the fourth quarter, but clearly not by enough. Year-end net debt/earnings before interest, tax, depreciation and amortisation will be around 2.6 times, implying a bigger-than-expected deficit, despite this year's cash call.

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