Aerospace and defence business Cobham (COB) is up 6.2% to 129.8p despite posting a 2016 pre-tax loss of £847.9m on a series of writedowns and announcing plans for a £500m rights issue.
The company flagged the need to shore up the balance sheet after delivering its fifth profit warning in 15 months (17 Feb). On an underlying basis, pre-tax profit was £175.2m, down from £280.4m a year ago.
GRASPING THE NETTLE
The market clearly thinks new chief executive David Lockwood is ‘grasping the nettle’ and is prepared to look through to an eventual recovery.
However, it is worth remembering that similar claims were made last summer after a previous £500m fundraising and substantial warning.
Founded by air-to-air refuelling pioneer Sir Alan Cobham, the Poole-headquartered outfit operates in commercial, defence and security markets. It has leading positions in air-to-air refuelling, aviation services, wireless, data communications (including satcom), defence electronics, life support and mission equipment.
TOXIC MIX
Cobham’s struggles can be put down to a toxic mix of financial irregularities, poor acquisition planning and taking on too much debt.
A big factor behind the strain on the balance sheet was the $1.46bn acquisition of US firm Aeroflex in May 2014. This deal, which boosted exposure to the civil aerospace sector, was largely funded by debt.
