Cohort — Stronger H222 underpinned by record backlog

Cohort (AIM: CHRT)

Currency in

Last close As at 30/11/2023

440.00

11.00 (2.56%)

Market capitalisation

GBP177m

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Research: Industrials

Cohort — Stronger H222 underpinned by record backlog

H122 results proved disappointing as Chess failed to deliver against expectations. The weakness at EID was anticipated, although there is a further deferral to its recovery. MCL, SEA, MASS and ELAC are all expected to make progress in FY22. However, this will not compensate for the shortfall at Chess and we have reduced our EPS estimates by 12% in FY22 and 8% in FY23 to reflect that. We expect that following a strong recovery in FY23, Cohort should return to sustainable growth in FY24.

Andy Chambers

Written by

Andy Chambers

Director, Industrials

Industrials

Cohort

Stronger H222 underpinned by record backlog

H122 results

Aerospace & defence

16 December 2021

Price

540p

Market cap

£222m

Adjusted net cash (£m) at 31 October 2021
(excludes £8.2m lease liabilities)

6.1

Shares in issue

41.2m

Free float

72%

Code

CHRT

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(10.0)

(3.6)

(7.9)

Rel (local)

(7.2)

(4.4)

(16.9)

52-week high/low

678p

494p

Business description

Cohort is an AIM-listed defence and security company operating across six divisions: MASS (32% of H122 sales), SEA (23%), MCL (13%), the 80%-owned Portuguese business EID (4%), the 81%-owned Chess Technologies based in the UK (10%), and ELAC SONAR (18%).

Next events

FY22 results

July 2022

Analyst

Andy Chambers

+44 (0)20 3681 2525

Cohort is a research client of Edison Investment Research Limited

H122 results proved disappointing as Chess failed to deliver against expectations. The weakness at EID was anticipated, although there is a further deferral to its recovery. MCL, SEA, MASS and ELAC are all expected to make progress in FY22. However, this will not compensate for the shortfall at Chess and we have reduced our EPS estimates by 12% in FY22 and 8% in FY23 to reflect that. We expect that following a strong recovery in FY23, Cohort should return to sustainable growth in FY24.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

04/20

131.1

17.5

37.1

10.1

14.6

1.9

04/21

143.3

17.9

33.6

11.1

16.1

2.1

04/22e

149.4

14.6

30.0

12.2

18.0

2.3

04/23e

164.4

17.7

34.5

13.4

15.7

2.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

H122 depressed by EID and Chess

Revenue grew by 10% to £60.0m (H121: £54.4m), boosted by an initial first-half contribution from ELAC of £10.7m with MCL stronger, SEA progressing positively and a slightly lower performance from MASS. In Portugal, EID was weaker as expected, although there has been some additional delay to domestic orders that is likely to defer the timing of a recovery beyond FY23. The main shortfall was at Chess, where c £9m of revenues were deferred to H222 and FY23, leading to an adjusted H122 operating loss of £2.7m (H121: profit £0.3m) at the division. With measures taken to remedy the contract execution issues including a strengthened management team, the business should return to profit for FY22, as will EID. Cash flow remained strong with a £9.1m (H121: £4.9m) operational inflow, leaving adjusted net funds at £6.1m. The 18% minority in Chess is currently valued at £2.8m and should be bought by the year end, which should benefit the earnings contribution from a recovery in FY23. The dividend was increased by 10% to 3.85p.

Record backlog underpins recovery and growth

The record £285.8m order backlog was up £43.4m from the start of the year. Order cover of 89% for anticipated FY22 sales of c£150m rose to 92% by 10 December with further strong order intake expected in H222. H222 performance should be much stronger as operating profits rise at MASS, SEA, MCL and ELAC in FY22, although not enough to recover the shortfalls at EID and Chess. Management guides for FY22 estimates to be materially below prior expectations. With EID not recovering until FY24 and a lower trajectory for Chess, we expect a stronger performance in FY23. A return to growth in FY24 should be underpinned by the order book, some easing of COVID disruption and additional new opportunities.

Valuation: Successful delivery should boost rating

Growth has been deferred by a year, but underlying demand appears positive, although still subject to potential COVID disruption. Cash flow and dividend growth remain strong and the rating should appear less demanding as the year progresses assuming the recovery and subsequent medium-term growth prospects are reaffirmed. Our capped DCF value stands at 630p from 656p previously.

H122 results summary

The pandemic continued to challenge Cohort’s businesses to a degree in H122 through disruption and delays to marketing activities, ordering processes, the ability to deliver services and contract placement by customers. However, the main disappointment was the operational performance at Chess, which was only partly due to these effects. The problems should be remedied by actions taken to strengthen the leadership team and contract management, although some activity has been deferred to FY23. The shortfall added to the already indicated lower trading at EID in Portugal. The key highlights of the H122 results are as follows:

H122 saw continued strong order intake up 18% to £105.3m (H121: £89.2m), representing a book to bill ratio of 1.75x, with further strong order flow expected in H222. ELAC’s order intake of £46.6m included the group’s largest ever single system order win of €49m from Italy in July, covering submarine sonars. It more than compensated for the much-reduced order intake of just £6.1m at Chess (H121: £51.0m) against a very strong H121 performance.

The period-end order book of £285.8m (H121: £218.5m), was again a record and was up from £242.4m at the start of the year.

Exhibit 1: Cohort H122 results summary

Half year to October (£m)

H121

H122

% change

Order intake

89.2

105.3

18%

Book to bill

1..64x

1.75x

Order backlog

218.5

285.8

31%

Order cover for FY sales expectations

92%

89%

Revenues

Chess

11.53

5.93

-49%

EID

4.66

2.63

-44%

ELAC

-

10.69

MASS

20.25

19.06

-6%

MCL

4.66

7.91

70%

SEA

13.35

13.86

4%

Inter-segment revenue

(0.01)

(0.05)

650%

Group total

54.44

60.04

10%

Adjusted operating profit

Chess

0.31

(2.66)

-965%

EID

0.33

(0.49)

-249%

ELAC

-

1.52

MASS

4.61

3.72

-19%

MCL

(0.00)

0.55

N/M

SEA

0.77

1.23

59%

Unallocated central costs

(1.69)

(2.14)

27%

Group total

4.33

1.72

-60%

(Loss)/profit before tax

(0.37)

(1.71)

361%

Adjusted Profit before tax*

4.00

1.33

-67%

Adjusted EPS

7.74

3.04

-61%

DPS

3.50

3.85

10%

Adjusted net funds/(debt) excluding lease liabilities

(6.1)

6.1

Source: Company reports. Note: *Before exceptional items, amortisation of other intangibles and FX mark to market.

Revenues rose 10% to £60.0m (H121: £54.4m), with an initial contribution from ELAC of £10.7m. The ongoing businesses experienced a decline of 9% in revenues as growth in MCL and EID combined with a modest reduction at MASS. MASS was affected by lower electronic warfare operational support (EWOS) activity and delivery constraints due to the pandemic.

There were sharp declines at EID and Chess. While EID’s performance had been flagged, the decline of Chess was unexpected. The main shortfall was at Chess due to a combination of COVID constraints, delayed orders and poor contract execution, which in total deferred some £9m of revenues to H222 and FY23. Order slippage accounted for around £2m, while COVID constraints disrupted some £4m of contract delivery due to difficulties in meeting schedules and cost, compounded by reduced access to customer sites and delayed decision making by customers. Technical and schedule issues resulted in another £3m of revenue reduction against our expectations.

Chess made a £2.7m adjusted operating loss, £3.0m less than in H121 and EID made a loss of £0.5m a reduction of £0.8m on the prior year. In aggregate, MASS, SEA, MCL and ELAC made an adjusted operating profit of £7.0m (H121: £5.4m) up 30%, although that is before unallocated costs which rose by almost £0.5m to £2.1m.

As a result, group adjusted operating profit was down 60% to £1.7m (H121: £4.3m).

Adjusted EPS were 61% lower at 3.04p (H121: 7.74p).

The interim dividend was increased by 10% to 3.85p (H121: 3.50p), maintaining the group’s progressive dividend policy and reflecting management’s confidence in recovery and a return to growth underpinned by the order book.

Adjusted net funds (excluding lease liabilities) of £6.1m (H121: debt £6.1m), was a further strengthening from FY21 net cash of £2.5m, exceeding management expectations.

Exhibit 2: Cohort half yearly results by division and estimates

Year end April (£'000)

H121

H221

FY21

H122

H222e

FY22e

Revenue

Chess

11,528

17,113

28,641

5,925

15.556

21,481

EID

4,660

16,292

20,952

2,630

7,846

10,476

ELAC

-

8,290

8,290

10,692

12,520

23,212

MASS

20,248

19,309

39,557

19,064

23,262

42,326

MCL

4,658

13,322

17,980

7,913

12,764

20,677

SEA

13,350

14,608

27,958

13,859

17,454

31,313

Inter-segment revenue

(6)

(64)

(70)

(45)

(55)

(100)

Group total

54,438

88,870

143,308

60,038

89,347

149,385

Adjusted operating profit

Chess

308

2,710

3,018

(2,663)

3,630

967

EID

329

4,505

4,834

(489)

908

419

ELAC

-

1,173

1,173

1,515

1,572

3,.087

MASS

4,610

4,132

8,742

3,724

5,164

8,888

MCL

(2)

2,073

2,071

547

2,038

2,585

SEA

774

1,579

2,353

1,228

2,530

3,758

Unallocated central costs

(1,690)

(1,892)

(3,582)

(2,144)

(2,056)

(4,200)

Group total

4,329

14,280

18,609

1,718

13,78

15,504

Adjusted operating margin

Chess

2.7%

15.8%

10.5%

-44.9%

23.3%

4.5%

EID

7.1%

27.7%

23.1%

-18.6%

11.6%

4.0%

ELAC

-

14.1%

14.1%

14.2%

12.6%

13.3%

MASS

22.8%

21.4%

22.1%

19.5%

22.2%

21.0%

MCL

0.0%

15.6%

11.5%

6.9%

16.0%

12.5%

SEA

5.8%

10.8%

8.4%

8.9%

14.5%

12.0%

Group Total

8.0%

16.1%

13.0%

2.9%

15.4%

10.4%

Source: Company reports, Edison Investment Research estimates

Outlook

Most divisions had higher backlogs at H122 compared to the start of the year, including Chess and EID, except for SEA, which contracted modestly to £67.4m (£69.5m), representing a sizable and long-term backlog. £74m of the H122 backlog should be delivered in H222 providing strong order cover of 89% for FY22 consensus forecast revenue expectations. With further orders secured since the half year, the cover level has increased to 92% by 10 December.

Exhibit 3: Cohort order backlog development

Source: Cohort

The record order backlog supports another strong second half of the year, with 92% of consensus revenue expectations of c £150m now covered by orders, a similar level to a year ago. The performance of both EID and Chess will be key elements of this, as well as delivering more EWOS contracts at MASS subject to COVID constraints.

Overall, the record order backlog also continues to underpin medium and long-term revenues. Management anticipates further good order flow in H222 with only a limited number of major renewals due so mostly new business. The length of the order book also continues to extend, with many long-duration maritime programmes including ELAC’s record win in Italy in July.

Exhibit 4: Cohort order backlog and run off

Source: Cohort

Management’s current expectations for FY22 adjusted operating profit performance is summarised as:

MASS: after a slightly weaker H121 margin performance (19%) due to delays in delivering EWOS services to some export customers, the mix of activity is expected to improve in H222, with FY22 margins expected to exceed 20% on stronger full-year revenues.

SEA benefited from stronger export activity for Torpedo Launcher Systems and KraitArray (towed sonar) systems as well as a healthy opening order book. With strong order intake last year following its restructuring, management expects the positive trends to deliver a stronger H222 performance, with £14.2m of its £67.4m H122 order book deliverable in H222.

MCL: the short-term ordering patterns at MCL provide the lowest visibility in the group, but increased activity for the UK MOD, including systems for autonomous vehicles, drove a good recovery in H122. The order backlog of £13.0m (FY21: £10.9m) was significantly higher than a year ago, and a good pipeline of opportunities supports management’s view of further improved performance in H222 as MOD activity responds to improved budget levels. Management expects full-year performance to at least match FY21 levels, with a strong start already provided.

EID: management appears confident that EID will return to profit in FY22. The reduced domestic order intake seems likely to persist through FY23, with an election in Portugal in early 2022 also potentially providing further challenges. Export orders are also currently scarce, so a recovery to historic levels of c £20m total group revenues with c 20% margins is not expected before FY24.

Chess: with £15.3m of revenue in the backlog of £42.6m (FY21: £42.3m) at the half year to be delivered in H222, Chess should have a far stronger second half, returning the business to profit for FY22. Although much weaker than we expected, H222 performance and the actions taken to resolve the issues and strengthen the business should allow a swift recovery in FY23, in our view, albeit on a lower growth trajectory.

ELAC SONAR: as it continues work on its new Italian contract and receives regular adjustment payments from Wärtsilä on a delayed order prospect to cover costs incurred, ELAC is expected to at least repeat its H122 debut six-month contribution. £10.8m of revenue to be delivered in H222 is in the opening order book of £55.9m.

The COVID constraints on travel and supply chains are likely to continue to be disruptive at least through the second half. While management is hopeful of some pick-up in activities already effected, eg EWOS services at MASS, the demand still appears to be there, just delayed, so at some point should be reflected in a return to growth. Concerns over renewed defence budgetary constraints have not manifested themselves yet.

Earnings revisions

The Chess performance effectively defers our growth expectations by a year. We drop our revenue expectations by 4% in FY22 and 2% in FY23. The impact on adjusted operating profit is a reduction of 18% and 9% respectively.

Exhibit 5: Cohort earnings estimates revisions

Year to April (£m)

2022e

2023e

Prior

New

% change

Prior

New

% change

Revenue

MASS

41.9

42.3

1.1%

43.5

44.4

2.1%

SEA

30.8

31.3

1.8%

33.8

34.4

1.8%

MCL

19.4

20.7

6.5%

20.4

21.7

6.5%

EID

13.0

10.5

(19.4)%

13.6

11.0

(19.4)%

Chess

31.2

21.5

(31.2)%

32.8

26.9

(18.1)%

ELAC SONAR

19.9

23.2

16.7%

23.9

26.0

8.9%

Total Group

156.1

149.4

(4.3)%

168.0

164.4

(2.1)%

 

 

 

 

 

 

EBITDA

22.0

18.5

(15.6)%

23.7

21.7

(8.1)%

MASS

9.6

8.9

(7.7)%

10.0

9.8

(2.3)%

SEA

3.9

3.8

(3.0)%

4.3

4.1

(3.0)%

MCL

2.2

2.6

15.6%

2.3

2.7

15.6%

EID

1.2

0.4

(64.2)%

1.2

0.9

(28.3)%

Chess

3.7

1.0

(74.2)%

3.9

2.6

(35.2)%

ELAC SONAR

2.2

3.1

41.1%

2.6

3.1

18.8%

HQ Other and intersegment

(4.0)

(4.2)

5.0%

(4.0)

(4.5)

12.5%

Adjusted operating profit

18.8

15.5

(17.7)%

20.4

18.7

(8.5)%

Adjusted PBT

18.0

14.6

(18.9)%

19.5

17.7

(9.3)%

 

 

 

 

 

 

EPS - adjusted continuing (p)

34.3

30.0

(12.6)%

37.4

34.5

(7.7)%

DPS (p)

12.2

12.2

0.0%

13.4

13.4

0.0%

Adjusted net cash/(debt)

0.7

(0.5)

N/M

9.7

5.9

(39.6)%

Source: Edison Investment Research estimates

After buying out the Chess minority in H222 for an assumed £2.8m, we expect the company to remain in a strong financial position, with near neutrality for adjusted net debt (excluding leases) at the year end. It should also benefit EPS as the dilutive minority is removed on a higher level of anticipated profitability, so the EPS impact in FY23 is only 8% despite an increasing tax charge.

Valuation

Despite the robust financial performance the deferral of cash flow growth does have an impact on our capped DCF valuation which, using our current calculated WACC of 7.2%, returns a value of 630 per share compared to 656p in July.

Exhibit 6: Cohort capped DCF sensitivity analysis to WACC and terminal growth (p/share)

WACC

6.0%

6.5%

7.0%

7.2%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

Terminal growth rate

0%

780

710

651

630

600

555

515

480

449

421

1%

786

716

656

635

605

559

519

484

453

424

2%

793

722

662

640

610

564

524

488

456

428

3%

800

728

667

646

615

568

528

492

460

431

Source: Edison Investment Research estimates

Exhibit 7: Financial summary

£m

2020

2021

2022e

2023e

Year end 30 April

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

131.1

143.3

149.4

164.4

Cost of Sales

(80.0)

(90.0)

(93.8)

(103.2)

Gross Profit

51.0

53.4

55.6

61.2

EBITDA

 

 

20.9

22.1

18.5

21.9

Operating Profit (before amort. and except.)

18.2

18.6

15.5

18.7

Intangible Amortisation

(7.4)

(10.1)

(6.7)

(3.1)

Exceptionals

(0.1)

(0.7)

0.3

0.0

Other

0.0

0.0

0.0

0.0

Operating Profit

10.7

7.8

9.1

15.6

Net Interest

(0.8)

(0.8)

(0.9)

(1.0)

Profit Before Tax (norm)

 

 

17.5

17.9

14.6

17.7

Profit Before Tax (FRS 3)

 

 

10.0

7.1

8.1

14.6

Tax

(0.3)

(1.6)

(1.2)

(2.6)

Profit After Tax (norm)

15.2

13.8

12.5

14.3

Profit After Tax (FRS 3)

9.7

5.5

6.9

12.0

Average Number of Shares Outstanding (m)

40.7

40.8

41.0

41.2

EPS - fully diluted (p)

 

 

36.7

33.3

29.8

34.2

EPS - normalised (p)

 

 

37.1

33.6

30.0

34.5

EPS - (IFRS) (p)

 

 

23.5

13.4

16.3

28.9

Dividend per share (p)

10.1

11.1

12.2

13.4

Gross Margin (%)

38.9

37.2

37.2

37.2

EBITDA Margin (%)

15.9

15.4

12.4

13.3

Operating Margin (before GW and except.) (%)

13.9

13.0

10.4

11.4

BALANCE SHEET

Fixed Assets

 

 

74.3

78.4

75.4

73.0

Intangible Assets

55.3

58.8

54.9

51.8

Tangible Assets

12.1

12.5

13.5

14.2

Right of Use assets

6.9

7.1

7.1

7.1

Investments

0.0

0.0

0.0

0.0

Current Assets

 

 

80.1

112.5

111.5

123.9

Stocks

11.5

12.9

14.2

15.3

Debtors

47.3

66.6

64.2

69.1

Cash

20.6

32.3

32.3

38.8

Other

0.7

0.8

0.8

0.8

Current Liabilities

 

 

(32.8)

(56.6)

(47.7)

(51.2)

Creditors

(32.8)

(56.6)

(47.7)

(51.2)

Short term borrowings

(0.1)

(0.1)

0.0

0.0

Long Term Liabilities

 

 

(39.8)

(49.2)

(52.2)

(52.3)

Long term borrowings

(25.2)

(29.8)

(32.8)

(32.9)

Lease liabilities

(7.5)

(7.6)

(7.6)

(7.6)

Other long term liabilities

(7.1)

(11.9)

(11.9)

(11.9)

Net Assets

 

 

81.8

85.1

86.9

93.5

CASH FLOW

Operating Cash Flow

 

 

13.0

21.1

10.2

18.8

Net Interest

(0.8)

(0.8)

(0.9)

(1.0)

Tax

(0.6)

(4.1)

(2.0)

(3.4)

Capex

(2.7)

(1.2)

(2.7)

(2.9)

Acquisitions/disposals

(1.2)

(3.3)

(2.8)

0.0

Financing

(2.2)

(0.3)

0.0

0.0

Dividends

(3.9)

(4.2)

(4.7)

(5.1)

Other

0.0

0.0

0.0

0.0

Net Cash Flow

1.7

7.2

(3.0)

6.4

Opening net debt/(cash)

 

 

6.4

4.7

(2.5)

0.5

HP finance leases initiated

0.0

0.0

0.0

0.0

Other

(0.0)

(0.0)

0.0

0.0

Closing net debt/(cash) (excluding leases)

4.7

(2.5)

0.5

(5.9)

Total financial liabilities

 

 

12.2

5.1

8.1

1.7

Source: Company reports. Edison Investment Research estimates


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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Cohort and prepared and issued by Edison, in consideration of a fee payable by Cohort. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Auriant Mining — More than meets the eye

As in previous quarters, Auriant’s new policy of selling gold on an ‘as needed’ (rather than maximised) basis has resulted in the full benefits of its new processing plant at Tardan being disguised. Allowing for a 7.5% under-sale of gold relative to production as well as a $2.2m waste rock disposal provision, actual Q321 results were within 5.2% (or $0.2m) of our prior expectations before tax (see Exhibit 2). Having produced 680kg gold so far in FY21 and with the mining of ore and waste at, or near, record levels in Q3, with a further quarter’s worth of ore in stockpile, barring the unexpected, we believe that Auriant will comfortably achieve its FY21 production guidance for Tardan of 860–910kg.

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