If top-level corporate insiders are selling large quantities of company stock, it can pay to approach the stock with caution. Large insider sales can be a sign that the outlook for the company is deteriorating or that the stock is overvalued.
Here, we are going to flag some insider selling activity at Cohort PLC (CHRT:LN). Cohort is a holding company that owns six different defense-related technology companies. These companies operate in areas such as defense communication, surveillance, and electronic warfare. Cohort is listed on the Alternative Investment Market (AIM) of the London Stock Exchange and currently has a market capitalization of £256 million.
Cohort: Director Dealing
Our records show that on 12 January, Cohort’s Chairman Nicolas Prest sold 285,000 shares at a price of 615p per share. This sale netted the insider approximately £1.75 million.
This insider transaction stands out for two reasons. Firstly, it is a substantial sale. Our data shows that it is the largest insider sale at Cohort for several years.
Secondly, Prest has significant company and industry experience. Prest started his career at the UK Ministry of Defence (MoD) before moving to defence contractor Alvis in 1982. At Alvis, he became Chief Executive in 1989 and Chairman and Chief Executive in 1996. Prest left Alvis following its acquisition by BAE Systems in 2004, by which time the company had become a leading international business in military land systems. In 2006, he was appointed Chairman of Cohort. This experience means that he is likely to have a good read on his company’s future prospects.
Mixed H1 Results
Cohort published a mixed set of first-half results on 10 December. For the six months ended 31 October, revenue was down 10% to £54.4 million while adjusted operating profit was up 8% to £4.3 million. At the end of the period, the company’s order book was £218.5 million, up from £183.3 million at 30 April 2020. Net debt was £6.1 million, up from £4.7 million at the end of April.
Looking ahead, Cohort said that it expects performance in 2020/21 to be in line with market expectations. However, it also noted that Covid-19 restrictions have had some impact on its ability to engage with customers and that this may affect its order intake and revenue in the medium to long term. Additionally, it advised that possible downward pressure on defence budgets as a result of Covid-19 related spending programmes may impact some of its markets.
Given this mixed update, we see the large insider sale here as a reason to be cautious towards the stock at present.