Goldman Sachs downgrades Cobham as "pressure" mounts

Goldman Sachs has downgraded global technology and services innovator Cobham to ‘sell’ from ‘neutral’ and lowered its price target to 110p from 174p.

The bank said that the company’s new management is tasked with stabilising the business, developing a strategic plan to restore growth and deleveraging the balance sheet.

The forecasts for 2017’s organic growth was cut to -1.8% due to the continued pressure on the wireless business and defence program phasing.

The bank expects a “relatively muted” outlook for 2017 to weigh on sentiment in the company’s upcoming final results.

The price target cut implies 20% downside and price/earnings for 2017/18 at 11 or 10.4 times, dividend yields of 4%-4.4% and free cash flow yields of 6%-9%.

The earnings per share forecast has fallen to 10.07p from 14.74p for 2017.

On the upside, an acquisition of Cobham is viewed as unlikely given the diversified nature of the business and sensitive contracts. A large disposal is also unlikely given commercial challenges in the Australian business as well as government concerns, according to the broker. Additionally there is better-than expected growth driving up earnings before interest, tax, and amortisation (EBITA) and cash flow.

The share price fell 2.46% to 134.80p at 1024 GMT on Monday.