The Lemon Fool

Some of us hold Cobham. They seemed a good idea, once.

Then the divi vanished, and the SP dived.

Now there's an 'agreed' takeover, SP up 35%.

'AI Convoy Bidco - an indirect subsidiary of funds managed by private equity investor Advent International Corp - has agreed to pay 165p per Cobham share in cash. This represents a 34% premium to Cobham's close of 123p on Tuesday, and a 50% premium to the three month volume weighted average price of 110p.'
Per ii, quoting The Financial Times.

But there's agreed, and there's 'agreed'.
Cobham is a defence contractor, so it's not impossible that the Govt may decide to step in.

This HYPer has decided to tinker Cobham, rather than wait for matters to take their course.

V8

88V8 wrote:Some of us hold Cobham. They seemed a good idea, once.

Then the divi vanished, and the SP dived.

Now there's an 'agreed' takeover, SP up 35%.

...

This HYPer has decided to tinker Cobham, rather than wait for matters to take their course.

V8

I’ve been looking for a sell point for COB for two years!

It’s probably way to early but I sold today for a small overall profit.

Bought in March 2016
Dividend received in May 2016
Took up rights in June 2016
Dividend received in November 3016
Let rights lapse in May 2017
Sold in July 2019

Overall profit after trading costs: 15.7%
XIRR 4.3%

Could have been a lot worse!

The following is full of hind-sight bias but perhaps useful or interesting

Q1: Should I have bought (doubling up Defence sector - at the time I wanted to diversify and double all possible sectors).
A1: The share certainly looked VERY reliable at the time I bought. I have no idea how I could have predicted the problems. I seem to recall that no one else seemed to be pessimistic. Conclusion, I think it was a good buy at the time and I’d do it again.

Q2: Should I have take up the rights in 2016?
A2: In hindsight maybe the was the first sign of trouble. I can’t remember if a cut had been announced yet. No conclusion!

Q3: Should I have taken up the rights in 2017?
A3: The dividend had been cut, no sign of return. Conclusion a good decision and one I’d take again. (Even if current take-over makes the price continue to soar.)

Q4: Was this a good time to sell?
A4: Too early to say for sure, but it feels right and I’m certainly happier with the shape of my HYP than I was yesterday.

Q5: Should I have sold as soon as the dividend was cut?
A5: This is the most important question for me. Was I lucky that the share price recovered? Is this a predictable (but unbelievably slow) “dead cat bounce”? Indolence is easy and doesn’t seemed to have hurt me in this situation, unlike CLLN and IRV where indolence cost me almost every penny invested. Conclusion, I won this one and am a little wiser - but not yet wise enough to have a consistent sell policy for my HYP.

SDN

PS: At the moment the plan is to split the money from the sale of COB between Lloyd’s and IMI. If anyone wants to discuss that maybe best in a separate thead.

Hi SDN123 -

My COB purchase history bears an almost spooky resemblance to yours as listed.....

I haven't rushed to the SELL button yet, as I am hoping that a trade buyer may emerge to offer the chance of a modest auction - my initial reading this morning says that (1) the current management has made a good start on resolving the legacy issues of the past, and (2) private equity houses have a talent for spotting shares where the business recovery has started but has not been reflected in the share price - hence the 'opportunistic' bid.

So, maybe I'll take a few days to consider which way to jump.

Davidsb wrote:Hi SDN123 -

So, maybe I'll take a few days to consider which way to jump.

I’m sure that you are wise in waiting a few days.

I know that I may miss out some short-term capital gain but I am travelling for the next month and so won’t be able to monitor closely* as things develop. (* “monitor closely” is really short-hand for “hope blindly for more up than down and for some, currently-unknown, clear signal that now is the time to sell”).

I may also miss out in mid- to long-term capital gains BUT I suspect that private equity houses will not rush to restart dividends - at least selling now means that I can increase my forecast income for next year (by buying/topping up) which, for me at least, is the point of HYP.

SDN

I too followed a similar path to SDN123, although first bought in July 2015. I tail swallowed the first rights issue, and passed on the second.

And I too sold out this morning based on the same logic as 88V8, but have re-invested in ITs, rather than HYP shares.


For those still holding, the dividend was re-instated at 0.40p, ex-div 10 October, paid 8 November, but the agreed offer price will be adjusted if the takeover is not complete before the dividend is paid.

Half year report https://www.investegate.co.uk/cobham-plc--cob-/rns/half-year-report/201907250700216466G/

Agreed takeover announcement https://www.investegate.co.uk/cobham-plc--cob-/rns/recommended-cash-acquisition-of-cobham/201907250700266475G/

With the exception of Carillon, I have found that it is better to wait a while after adverse dividend reports. There is usually a knee jerk reaction, then a partial recovery. In the case of Anglo American a few years back, after the initial fall it recovered to a level above that at which I bought. As they were slow to restore any dividend I was able to switch into BHP Billiton for a yield not otherwise attainable with them.

TJH

tjh290633 wrote:With the exception of Carillon, I have found that it is better to wait a while after adverse dividend reports. There is usually a knee jerk reaction, then a partial recovery. In the case of Anglo American a few years back, after the initial fall it recovered to a level above that at which I bought. As they were slow to restore any dividend I was able to switch into BHP Billiton for a yield not otherwise attainable with them

But this does not sound like an 'adverse dividend report'. If fact it does not seem to have anything to do with the dividend.

I sold in November 2016 at £1.60 so they have done nothing in the last 2 1/2 years. I'd say a lucky break to get an offer like that.

Take it and run I'd say!

Dod

Dod101 wrote:

tjh290633 wrote:With the exception of Carillon, I have found that it is better to wait a while after adverse dividend reports. There is usually a knee jerk reaction, then a partial recovery. In the case of Anglo American a few years back, after the initial fall it recovered to a level above that at which I bought. As they were slow to restore any dividend I was able to switch into BHP Billiton for a yield not otherwise attainable with them

But this does not sound like an 'adverse dividend report'. If fact it does not seem to have anything to do with the dividend.

I sold in November 2016 at £1.60 so they have done nothing in the last 2 1/2 years. I'd say a lucky break to get an offer like that.

Take it and run I'd say!

Dod

Read the first post, Dod. "The dividend vanished and the price plunged".

Now there is a takeover bid at an enhanced price. If that didn't justify waiting a bit, what would?

TJH

I hold, and at a small profit, having bought quite a few more at around 80p.

I shall probably sell.

MDW1954

Selling in Nov 16 at £1.60 and 'redeployment' of funds elsewhere was the correct move I'd say, based on the divi record as tabulated below where there have been 2.5 years of zip! The adverse divi report happened years ago so knees have been trembling for quite some time.

I'd say a fortunate "exit" point has presented itself.

monabri wrote: I'd say a fortunate "exit" point has presented itself.

I think you're right.

MDW1954

tjh290633 wrote:

Dod101 wrote:

tjh290633 wrote:With the exception of Carillon, I have found that it is better to wait a while after adverse dividend reports. There is usually a knee jerk reaction, then a partial recovery. In the case of Anglo American a few years back, after the initial fall it recovered to a level above that at which I bought. As they were slow to restore any dividend I was able to switch into BHP Billiton for a yield not otherwise attainable with them

But this does not sound like an 'adverse dividend report'. If fact it does not seem to have anything to do with the dividend.

I sold in November 2016 at £1.60 so they have done nothing in the last 2 1/2 years. I'd say a lucky break to get an offer like that.

Take it and run I'd say!

Dod

Read the first post, Dod. "The dividend vanished and the price plunged".

Now there is a takeover bid at an enhanced price. If that didn't justify waiting a bit, what would?

Sorry but the Cobham dividend vanished a long while ago. I sold in November 2016 and had held on quite a bit after the 'dividend vanished' as someone put it. It was a good company with a long record of good results but the recovery from the disastrous takeover was clearly going to take a lot longer than I was prepared to wait and so I sold. I think I may have bought around £2 but I cannot find the records.

Before this takeover bid, the price was well below my £1.60 because even today with the takeover premium it is not much more than that. With my proceeds I bought Primary Health Properties which has increased its dividend each year since and is modestly up in the share price. With respect, TJH, you are being wise with hindsight.

Dod

Dod101 wrote:

tjh290633 wrote:

Dod101 wrote:But this does not sound like an 'adverse dividend report'. If fact it does not seem to have anything to do with the dividend.

I sold in November 2016 at £1.60 so they have done nothing in the last 2 1/2 years. I'd say a lucky break to get an offer like that.

Take it and run I'd say!

Read the first post, Dod. "The dividend vanished and the price plunged".

Now there is a takeover bid at an enhanced price. If that didn't justify waiting a bit, what would?

Sorry but the Cobham dividend vanished a long while ago. I sold in November 2016 and had held on quite a bit after the 'dividend vanished' as someone put it.

I think you must be mistaken.

From my records, the actual timetable was as follows:

Date      | Event                         | Dividend * | Annual Total | Comment                                           | Price *
06-Aug-15 | Interim Results: YE 31 Dec 15 |       2.25 |              | Interim Dividend Increase of 5%                   |        
03-Mar-16 | Prelim Results: YE 31 Dec 15  |       6.00 |         8.25 | Annual Dividend Increase of 5%                    |  176.72
01-Jun-16 | £500M Rights Issue Announced  |            |              | 1 for every 2 at 89p. Dividend will be maintained |  119.63
04-Aug-16 | Interim Results: YE 31 Dec 16 |       1.76 |              | 21% Drop in Interim Dividend                      |  144.08
24-Oct-16 | Trading Update                |            |              | Not good                                          |  121.40
11-Jan-17 | Post Close Trading Update     |            |              | Final Dividend will be cancelled                  |  121.75
02-Mar-17 | Prelim Results: YE 31 Dec 16  |       0.00 |              | Dividend Cancelation confirmed                    |  120.44
02-Mar-17 | £500M Rights Issue Announced  |            |              | 2 for every 5 at 75p.                             |  120.44

(*) – Prices and Dividends adjusted for Rights Issues

So, a sale in November 2016 was after the first £500M Rights Issue, after the interim dividend was reduced by about 21%, and after a not-to-good Trading Update. But it was at least two months before it was reported by the company that the dividend would be cancelled. Such a sale was therefore well before the “dividend vanished”. The share price had rallied by November 2016 to around the 160p mark – before the effects of the second rights issue of course.

Dod101 wrote:It was a good company with a long record of good results but the recovery from the disastrous takeover was clearly going to take a lot longer than I was prepared to wait and so I sold. I think I may have bought around £2 but I cannot find the records.

Well, for myself, in early 2012 I purchased British Aerospace (BA) and, since that time at least, have never seen COB as an HYP Candidate. As well as my already holding BA, COB was not a high enough Yield or else under a cloud (trading Updates and Rights Issues). But you are right about the dividend increases: 10% or more every year right up until the Rights Issues took place.

That disastrous takeover must have been the takeover of Aeroflex Holding Corporation for approximately $1.46B. No, as it turned out, not a good deal. Not least because of the $540M debt taken on! Another reason not to buy in my opinion. **

By the way, if you bought for 200p it must have been in March/April 2016, before that the price was considerably higher and afterwards much lower. So you did not hold for very long but did go through one Rights Issue. What did you do with that: lapse, take up or tail swallow? Just curious.

** - In point of fact I have never seriously considered COB for my HYP, so that may be hindsight talking


Ian

It does not matter now but I see from my records that I bought Cobham in 2011. I cannot find my purchase price but given that it was £2.22 on I January 2012, I think my recollection of around £2 is about right. After the Aeroflex takeover it all went pear shaped but up until then it had a very good record. It simply got too big for its boots and thought it could walk on water. I am sure I did not participate in the rights issue.

As I said I eventually gave up on it (much too late of course) and sold at £1.60 in November 2016 which was probably quite a good idea as it turned out.

Dod

MDW1954 wrote:I hold, and at a small profit, having bought quite a few more at around 80p.

I shall probably sell.

MDW1954

Updating my own post, I'm persuaded to delay that sale, following news in the FT tonight of institutional shareholder criticism of the deal.

A better price may be eventually forthcoming.

FWIW, I'd have bought Ibstock with the proceeds.

MDW1954

Dod101 wrote:It does not matter now but I see from my records that I bought Cobham in 2011. I cannot find my purchase price but given that it was £2.22 on I January 2012, I think my recollection of around £2 is about right.

Oh right! so you bought at a yield of about 3.00%? (Annual Dividend YE 31 Dec 2010: 6.00p), or if you include the increased Interim of 1.80p paid on 11 Nov 2011, the yield was perhaps 3.10%. Was that considered High Yield for HYP purposes? I only ask because I did not start my HYP until February 2012 so maybe there was a good reason for taking such a low yield that I do not know about. British Aerospace (BA) had a yield of around 6.00% at that time (November 2011) so why buy such a low yield as part of an HYP? Was it perhaps part of your "avoid dangerous high yields" strategy? Just curious.


Ian

I do not recall the thinking but this was a share with an excellent record in a niche market. I was very happy obviously to take a slightly lower yield to buy a 'quality' company. As I have said, it, with hindsight, thought that it could walk on water, but it took a step too far and hit a disaster without the ability to recover.

End of.

Dod

Dod101 wrote:I do not recall the thinking but this was a share with an excellent record in a niche market. I was very happy obviously to take a slightly lower yield to buy a 'quality' company.

Slightly lower yield? Surely, what you actually took was no more than half the yield that was then available on British Aerospace (BA), an issue that I do know something about, bearing in mind I bought in in February 2012.

As this is the HYP Practical board I, and maybe many other HYPers, would benefit from your long experience of following the HYP Strategy, and specifically why the 6.00% yield offered by BA was rejected in favour of the 3.00% offered by its smaller rival, COB? Can you not enlighten us at all?


Ian

That is all I will say on this matter as I cannot believe that it is of interest to many but I will say that I would not have bought British Aerospace in any case because I do not believe in buying armaments companies.

Dod

Dod101 wrote:That is all I will say on this matter as I cannot believe that it is of interest to many but I will say that I would not have bought British Aerospace in any case because I do not believe in buying armaments companies.

Oh you are right, British Aerospace (BA) is involved in supplying "armaments".

Mind you, is Cobham (COB) not also in the same market? Having never seriously considered COB I am not as knowledgeable as you obviously are, but a quick look at their website does show this:

https://www.cobham.com/advanced-electro ... e-systems/

Cobham's electronic warfare components, modules, subsystems, and services span:

Electronic Attack (EA)
Electronic Protect (EP)
Electronic Support (ES)

Cobham’s Electronic Warfare solutions can be found on most of the US Army, Air Force, Navy, and Marine Corps platforms deployed throughout the world.
Capabilities and products include:

Communications Countermeasures
Exciters for Radar and Communications
High-Power Transmit Antennas
Radar Countermeasures
Spread Spectrum Technologies
EMissions CONtrol (EMCON)
Low Observability
Electronic Surveillance and Radar Warning Receiver Subsystems
Electronic Surveillance Multi-Channel Receivers
Electronic Surveillance Antenna Suites

Is that not "Armaments"?


Ian