Investment: Cobham flies above its sector

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The Independent Online
COBHAM IS flying high at a time when most engineers are grounded. The company makes hi-tech devices for the aerospace industry which would not look out of place in a Star Trek or James Bond movie, but its profit growth is all but fictional.

Sales of air-to-air refuelling systems, radar antennas and weapon-carrying devices propelled interim pre-tax profits to pounds 30m - a 20.5 per cent increase. The second half promises more of the same.

Cobham is benefiting from its leading position in a number of niche markets at a time when the aerospace cycle, both civil and military, is firmly on the up.

It is no coincidence that yesterday's sour notes came from the non-aerospace operations.

Sales of Cobham's revolutionary air-spindlers - which use air as a lubricant for higher speed - slumped as its manufacturing customers were hit by the Asian crisis.

This will affect negatively the division's profits in 1998 and beyond, and prompted a trimming of analysts' forecast. However, the impact on Cobham's profits will be minimal as the division accounts for just 16 per cent of its operations.

In the aerospace business, Cobham's links with Airbus, which is outpacing Boeing in the aircraft war, augur well for the future.

Involvement in the Eurofighter project and in the revamp of the Nimrod aeroplanes for British Aerospace - the total order book stands at a healthy pounds 722m - will keep it busy until 2010.

Cobham's biggest handicap is that it is clustered with other engineering stocks. The sector's woes have sent the shares into freefall in the last 12 months. They rose 6.5p to 605p yesterday, but they are still half of what they were in May.

Profit forecasts of pounds 62.5m put the shares on nearly 14 times expected earnings. A premium to the sector, but a deserved one. Buy.