Cobham plc share prices recorded mixed performances


Restructuring programmes - During the six months period two major redundancy cuts were planned, in addition to the closures of factories in order to protect margins.

Defence cuts - Financial cuts in the US and UK aerospace industry made the recovery of Cobham share price more difficult. The further cuts in the industry have thrown Cobham's ability confidence to be able to meet their forecasted share price targets.

'Slash' in share price targets - Analysts cut Cobham's share price targets following a crash in its share price in November. Although, no clear reason as to why Citigroup placed a 'buy' recommendation on Cobham's shares.

FTSE 250 index - Cobham was replaced on the FTSE 100 index by IMI plc - 6th December 2010. Following was a further 2.4% drop in its share price.

Take-over rumour - Nearly 4% appreciation in share price after huge speculations of a possible take-over of Cobham. Their major rise in share price after an initial crash in share price in November.

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Rise and fall of Cobham - Between the six months period, Cobham share price reached a maximum of 245p and minimum of 192.5p in mid-October and late November respectively.

We initiate coverage of Cobham with a HOLD recommendation, because we believe that the potential side of the company is yet to be unveiled.



BAE Systems PLC


Rolls Royce Group PLC


BE Aerospace INC


Competitors Share Price

(31st January 2011)


Cobham is an international British manufacturing company which operates in the Aero/Defence sector - engaged in the development, delivery and support of leading edge aerospace and defence system in the air, on land and at sea. Cobham, founded in 1934 operates in four distinctive divisions and claims to be world leaders in air-to-air fuelling. Their competitor includes - BAE Systems Plc and Spirit Aero Systems Holdings Inc. Strategic acquisition and high investment has transformed the company to top 100 in aerospace firms. Recently in January 2011 it acquired Telerob GmbH.

Aim of Report

Company Overview

Page 4


The aim of this report is to analyse and explain the causes of Cobham share price movements within the six months commencing 1st August 2010 through to 31st January 2011; and the outcome of this is presented further in the report.

During this report, Cobham is compared with its competitors and FTSE 100. The analysis takes into account the most significant changes in the company's share price over the six months period. As a result an explanation would be given as to why the share price has moved in a particular way. I.e. (fall, rise or flat)

Cobham's share price movements between 1st August 2010 - 31st January 2011 (FT - Market Data)




Rise in share priceREPORT

Cobham plc share prices recorded mixed performances during the last six month. These include bull and bear reactions and various stages of these movements have been reflected graphically in this report.

Early August recorded share price fall from 240p to as low as 221p. On the 5th of August share price were at 224p mainly due to the lack of visibility in Cobham's ability to meet the analyst second-half forecast. Consequently, there was a drop of 16p in its share price. In addition, the large restructuring programme undertaken by Cobham contributed to the further decline in share price. For example, the redundancy expenditure (£130M-£150M) sent a negative signal to the market of lower future profits. Share prices plunged deeper to a low of 207p in the final third of August. On the other hand, BE Aerospace INC performed relatively similar to Cobham during this period, while FTSE 100 performance was fairly stable.

Bear in share price of 207p

5th of August

In September, Cobham's share price rose rapidly to as high as 238p. This resulted from the restored Cobham's' investor confidence. However, there were minor fluctuations in share price during mid-September. In particular, the one-off payment of €37m on 15th September to a commercial customer regarding the effectiveness of the components supplied by Cobham led to a loss in this year's financial statement. Although, the insurance cover on the loss will not be recognised this year until it has been received. The recorded loss would result in lower profit and lower expected dividend by investors. The market reacted negatively to this news leading to a drop in share price. During September ending the aerospace industry braced out for deep spending cuts as a result, Cobham and its peers experienced deterioration in their share prices.

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Mid-September - fluctuations and drops in share price.

(FT - Market Data)

(FT - Market Data)

Page 5


Cobham plc

FTSE 100

BE Aerospace

Source: Thomson ONE

During the six months period, the Aerospace sector share prices suffered from the government defence cuts. After an initial share price recovery in early September, the highly anticipated cuts in the UK defence sector had a huge impact on Cobham and its peers share prices in early November. BAE (Cobham's competitor), experienced a 5.5% fall in its share price, however two-thirds of their revenue are earned in the US - therefore, the fall in its share price was limited. In addition, a reassurance was given by BAE chief executive regarding the cuts. This could have helped in suppressing the full negative impact on their share price.

Cobham however, performed relatively worse to BAE as its share price plummet to 204p in early November - which resulted in an adverse change in their share price analysts targets (as seen on the diagram on the right). Cheuvreux Ltd mounts additional doubts on Cobham share price revival, as they predict it to 'underperform'. Likewise, Citigroup also cut Cobham price target, nonetheless they still suggested a 'buy' recommendation on Cobham's shares.

In addition, Uncertainties from the share target cuts lead investors to panic, which led to a massive fall in the aerospace sector share prices overall. In particular, the delays in the US contracts for Cobham worsened its share price by 9.5% to 211½p. Moreover, Cobham's earning is thought to be cut by around 5% by analysts as their cash-cow division (technology) is doubtful for organic growth this year.

Credit Suisse cuts Cobham price target

270p 240p

Nomura cuts Cobham price target

225p 210p

(Source: Thomson ONE)




Cobham plc

BAE Systems plc

Period of cuts from the UK industry. FT-Market data

Crash in share price

(FT - Market Data)

Page 6


Late November to early December saw more fluctuations in Cobham's share price. Factories closures in an attempt to protect profit margins could have sent mixed signals to the market. Although investors will be motivated by the profit motive behind these closures, but will also consider the long-term implications for the company.

Furthermore, the US planned to cut back $100bn from its defence industry. The consequences of these cuts increased the fear of lower profit in the future. As a result a 'sell' recommendation was placed on BAE shares as it dropped 1% to 327p, meanwhile Cobham share price plunged to its lowest during the six months period - 192.5p. The sequential cost-cutting and anticipated further US contract delays was mainly to be blamed for the drop in share price.

A further 2.4% drop in Cobham's share price on the 6th of December demoted Cobham into the FTSE 250. This was due to the fall in its shares value in the FTSE 100.

Following this was a speculation of Cobham being the target company of a possible take-over which saw its share price climb 3.7% to 203.6p. Possible reason for the share price boost was the expectations of higher returns on Cobham shares (capital gains). This is because for the takeover to fall through the acquiring company must pay a premium for the share price of the target company (Investopedia, 2011). This incentive and rumour further improved Cobham's share price by 2.9% to 209.5p on 10th December.

Lowest 192.5p

Fluctuation in Cobham's share price.

1% drop in BAE share price - 327p

BAE Systems recommendation

Rumour on possible takeover.


(FT - Market Data)

(FT - Market Data)

Page 7


Cobham's share price showed improvements between 31st of December and 12th January 2011. Afterwards share price dropped 1.6% down to 224.5p after the released plans to make further job cuts (13th January 2011).

The news of deeper cuts in the US military market worsened the UK defence companies share prices. The US defence market accounts for the majority of Cobham's profits and has left investors no choice but to lose confidence in Cobham and other UK defence companies (BAE) ability to meet share price targets.


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24th January - Further US defence cuts

Decline in share price

US defence cuts

(FT - Market Data)

Page 8


Cobham and FTSE share price movements between 1st August 2010 - 31st January 2011 (Thomson ONE)


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00144feabdc0.html#axzz1GaN4uGAe [Accessed 10 February 2011]

Financial times (2011) Dividend hopes and bid speculation help boost Prudential. Available


00144feabdc0.html#axzz1GaN4uGAe [Accessed 10 February 2011]

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Financial times (2011) Supermarkets feel squeeze in new store race. Available at

00144feab49a.html#axzz1GaN4uGAe [Accessed 25 February 2011]

Financial times (2011) Cobham shares drop 10% amid US defence cut. Available at

00144feab49a,s01=1.html#axzz1GaN4uGAe [Accessed 25 February 2011]

Financial times (2011) Cobham to hasten factory closures. Available at

00144feab49a.html#axzz1GaR94grq [Accessed 25 February 2011]

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#axzz1GaN4uGAe [Accessed 16 January 2011]

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Financial times (2011) Investors scent Unilever potential following upgrade. Available at

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00144feabdc0.html#axzz1GaN4uGAe [Accessed 4 March 2011]

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00144feabdc0.html#axzz1GaN4uGAe [Accessed 4 March 2011]

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00144feab49a.html#axzz1GaN4uGAe [Accessed 6 March 2011]

Financial times (2011) Deal lifts Meggitt's aircraft role. Available at

00144feab49a.html#axzz1FHZOZmqi [Accessed 6 March 2011]

Financial times (2011) Defence groups target US military spending. Available at

00144feab49a.html#axzz1FHZOZmqi [Accessed 6 March 2011]

Financial times (2011) Icap lower on update fears. Available at

00144feab49a.html#axzz1FHZOZmqi [Accessed 6 March 2011]

Guardian (2011) Cobham climbs on takeover talk, as FTSE edges higher despite euro

concerns. Available at

/2010/dec/09/cobham-climbs-takeover-talk [Accessed 28 February 2011]

London stock exchange (2011) Product Damages Award. Available at


[Accessed 10 February 2011]

LSE (2011) Cheuvreux cuts Cobham to underperform. Available at Code=m7vz1


cuts_Cobham_to_underperform [Accessed 10 February 2011]

LSE (2011) Nomura cuts Cobham price target. Available at


_ALERTNomura_cuts_Cobham_price_target [Accessed 10 February 2011]

Reuters (2011) IMI joins FTSE 100 index, Cobham out. Available at

-idUKTRE6B75B520101209 [Accessed 28 February 2011]

Thomson ONE (2011) Credit Suisse cuts Cobham price target. Available at

[Accessed online 10 February 2011]

Thomson ONE (2011) Citigroup cuts Cobham price target. Available at

[Accessed 25 February 2011]

Yahoo finance (2011) Concerns on timing of US orders hit Cobham. Available at

2453954179.html?x=0&.v=1 [Accessed 10 February 2011]