Cohort shares rose over 6% on Wednesday after the company announced record half-year results, significantly outperforming market expectations for revenue and operating profit.

The company reported a 69% surge in adjusted operating profit to £10.1m, driven by a 25% increase in revenue to £118.2m on higher demand for the defence group’s products.

“Cohort delivered a much stronger performance in the first half compared to the same period last year, with growth in both revenue and adjusted operating profit,” said Nick Prest CBE, Chairman of Cohort.

“Continued strong order intake has driven a record closing order book which underpins most of the second half of this financial year. In line with previous experience we anticipate a stronger performance in the second half and we remain on track to achieve our expectations for the full year.” 

In a clear sign of continued business momentum, Cohort achieved a record order book of £541.1m, surpassing the April 2024 figure of £518.7m.

The company’s order intake remained strong at £139.2m, with particularly notable performance in its Communications and Intelligence division.

“Demand for our solutions and services continues to be driven by heightened international tensions in the Asia-Pacific region as well as conflict in Europe and the Middle East,” said Nick Prest.

“This backdrop is driving increased spending on defence and security. Overall, we continue to see a positive outlook for organic growth in the years ahead.”

Cohort has increased its interim dividend by over 10% to 5.25 pence per share, maintaining its track record of progressive dividend growth.

UK investors are starting to sit up and take notice of the deep potential for growth in London’s AI-focused small-cap shares. Although the UK’s listed arena is no match for the mega funding rounds being chalked up in a private setting in the US, some of London’s AI companies are doing very interesting things and have exciting growth prospects.

We explained last week that several AI stocks, including GenIP, Cel AI and Sealand Capital Galaxy, deserved higher valuations. Today, we outline why GenIP looks to be the pick of London’s high-risk/reward artificial intelligence small-cap shares.

GenIP has developed Generative AI models that help Technology Transfer Offices (TTOs) assess the commercial viability of new technological discoveries. With companies like Google and Yahoo starting life as university technology before commercialisation, technology transfer can be a vital revenue source for universities and other research institutions.

However, around 80% of promising technical discoveries never achieve their full market potential due to the challenges of adequately assessing technology and bringing it to market. This is where GenIP comes in.

GenIP has identified a clear pain point for Technology Transfer Offices and corporate research institutions: They are missing lucrative commercial deals because they lack the capabilities to analyse the market opportunity properly. GenIP’s Generative AI analytics services are solving this problem by helping research organisations cost-effectively assess whether their technological discoveries have commercial legs in the real world.

What sets GenIP apart from other London-listed AI firms is the validation of its business model and proven traction in its target market. Although still in its early stages, the company has already announced orders for its Generative AI analytics services at a pace that suggests annual revenues of around £1m.

One may dare to assume this run rate increases as the company deploys funds from its recent IPO in marketing and sales.

Having provided a means of deducing a very rough earnings/sales-based valuation, there’s enough data to conclude that GenIP offers investors good value compared to the broader AI space.

AI valuation explosion

According to filings in the US, Elon Musk’s xAI raised $6bn recently at a valuation of $45bn. The Wall Street Journal reported that xAI told investors that it is on track for revenues in the region of $100m in 2024. These two numbers infer a very rough 450x revenue multiple for the round, although the actual revenue multiple could be very different as the figures aren’t publicly available.

Anthropic, the owner of Claude, the emerging leader in the field of large language models, secured another $4bn investment from Amazon in November. The deal reportedly valued the Anthropic at $40bn.

With Anthropic revenue set to hit $1bn this year, Amazon’s investment was completed on a multiple of 40x revenue.

Of course, these funding rounds represent the very pinnacle of Generative AI deal flow in a private setting, and inferences to London-listed small-cap AI shares aren’t straightforward. That said, increasing enthusiasm for listed AI-related shares globally is starting to be felt in London.

Nowhere is this enthusiasm felt more than in US-listed Palantir, an AI-powered data software company that provides businesses with solutions to improve operations. After rallying over 300% year-to-date, Palantir trades at 57x its FY2024 revenue guidance of $2.8bn.

Share price moves of this magnitude are starting to be observed in London’s riskier small-cap market. Sealand Capital Galaxy, for example, has gained over 900% in a month.

GenIP valuation

Using a base case of £1m GenIP revenue and applying a similar multiple to those observed in the fundraises of Anthropic, Xai, and OpenAI, GenIP would have a valuation target in the range of £40m—£450m. This compares to GenIP’s current £4m market cap. Direct comparisons here are fraught with constraints, but comparing and applying similar valuation multiples highlights just how undervalued some UK-listed technology shares are.

The base case £1m revenue may prove to be conservative. GenIP has barely scratched the surface of a target market of over 4,000 universities. An upcoming marketing campaign utilising IPO funds should significantly increase the annual revenue run rate.

Should GenIP’s marketing activities prove successful and the company achieve £3m revenue this year, applying the same revenue multiples observed in recent US funding rounds would infer a valuation of £120m—£1.35bn. Of course, the upper end of this range is fanciful, but it does demonstrate the valuations some institutional investors are prepared to pay to secure holdings in the world’s most exciting AI companies.

The opportunity in GenIP is further highlighted by comparisons to other players in the London AI space. Sealand Capital Galaxy’s news of a plan to break into the AI space has attributed it a valuation above £10m.

However, investors will note that Sealand is yet to complete its investment in Evoo AI, an AI firm with proprietary models that provide insights into the luxury goods market. There are also questions about how the investment will be funded.

These uncertainties make Sealand no less an exciting opportunity, but the recent rally in shares SCGL shares highlights more profound value elsewhere in the sector, particularly in GenIP.

Given that GenIP has a clearly defined market and is already gaining traction with orders, it puts it far ahead of other London-listed AI firms that have yet to launch products or announce any meaningful order flow or user numbers.

Yesterday’s optimism around Chinese stimulus was short-lived. The hope that China would boost the economy through a mix of looser monetary policy and fiscal measures has quickly been met with scepticism about the effectiveness of their plans.

The result was a 0.5% drop in the FTSE 100 as China-focused stocks reversed much of yesterday’s gains.

“The FTSE 100 was in the red amid concerns that China’s economic stimulus measures might not have a long-lasting effect,” said Dan Coatsworth, investment analyst at AJ Bell.

“That triggered a sell-off in miners as investors worried that the Asian superpower wouldn’t have strong enough economic activity to drive a big increase in commodities demand.

“Chinese exports grew at a slower pace in November versus October and imports shrank. That doesn’t install much confidence about Beijing’s efforts to get the country back on top. The prospect of higher tariffs on Chinese goods exported to the US once Donald Trump is back in the White House also cast a dark cloud on the near-term outlook, making investors nervous about the region.”

The FTSE 100’s exposure to China means that any developments in the world’s second-largest economy have the potential to drive returns at an index level. The FTSE 100’s drop on Tuesday was almost exclusively due to concerns about China, with companies reliant on the country making up most of the top fallers. Antofagasta, Glencore and Prudential were all down over 2%.

Ashtead was the FTSE 100’s top faller, tanking over 12% after lowering its profit guidance amid slower revenue rental growth. Ashtead also dealt a major blow to London’s equity markets with plans to switch its primary listing to the United States.

“Equipment rental giant Ashtead is packing its bags and heading stateside, dealing another blow to UK markets. The move had been whispered about for a while, despite Ashtead previously insisting there were no such plans,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.

“It’s a logical leap – most of its leadership is already US-based, and the States are its biggest market. There will still be a secondary listing in the UK, albeit with less stringent requirements than a full listing. As for today’s results, they were a letdown, missing expectations across the board and topped off with a guidance downgrade. Sluggish commercial real estate is still a drag, but investors can find a silver lining in easier comparable quarters on the horizon and the longer-term tailwind of mega projects in the US.”

There was some marginal positivity in retailers such as B&M, Sainsbury’s and Tesco, but not enough to offset losses elsewhere.

hVIVO shares rose on Tuesday after the company announced a new contract win and reaffirmed revenue guidance, with EBITDA margin set to reach the upper end of the guidance.

hVIVO, the specialist contract research organisation, has secured a £11.5 million contract to test a new RSV antiviral drug candidate for an existing top-tier global pharmaceutical client.

The Phase 2a trial, scheduled to begin in the second half of 2025, will be conducted at the company’s Canary Wharf quarantine facilities, with revenue expected to be recognised across 2025 and 2026.

The study will be a randomised, double-blinded placebo-controlled human challenge trial, evaluating the safety, pharmacokinetics, and antiviral activity of the drug candidate. The company will use its in-house recruitment division, FluCamp, to enroll healthy volunteers for the study.

“This contract further demonstrates the trust and confidence that leading pharmaceutical companies place in hVIVO’s human challenge study models,” said Yamin ‘Mo’ Khan, Chief Executive Officer of hVIVO.

“We are proud to work with four of the top 10 global pharmaceutical companies to address unmet medical need in infectious and respiratory diseases. Our unique and established RSV model can provide valuable data on a candidate’s safety, pharmacokinetics, and efficacy, reducing the risks associated with later-stage clinical development and accelerating the pathway to market.”

hVIVO announced the new contract alongside a concise trading update confirming its financial guidance for the fiscal year 2024 and revenue of £62 million. The company expects its EBITDA margins to reach the upper end of market expectations, which currently range between 22% and 24%.

A comprehensive trading update for the year ended December 31, 2024, including the outlook for 2025, is expected to be released before the end of February 2025.

Ashtead has confirmed plans to switch its primary listing to the United States, where it conducts most of its business, to gain access to ‘deeper’ capital markets.

The announcement was made alongside the release of an interim statement revealing a 4% drop in profit before tax in the first half due to slower rental growth. Ashtead reduced its profit guidance for the year as a result.

The combination of slower rental growth, lower profit guidance, and plans to shift their primary listing to the US resulted in a 10% drop in Ashtead shares on Tuesday.

“Ashtead has warned on profit this morning citing difficulty in its primary market of North America. The construction market has seen weakness driven by the higher interest rate environment lasting longer. This has in turn hurt used equipment sales and higher depreciation costs have hit Ashtead’s numbers,” said Adam Vettese, market analyst at investment platform eToro

“Most notably in the update is the long rumoured intention to switch to a US listing. The firm does almost all of their business in North America, they report in dollars and the vast majority of their staff are in the region. Despite this making sense on many levels, it is still a huge blow for the UK to see the 25th largest firm in the benchmark FTSE100 index leaving. Amid London’s campaign to be attractive to upcoming IPOs, it’s far from the best time to see one of their stalwarts leave for pastures new.”

The decision comes as the company acknowledges its transformation into a predominantly US-focused business. With its executive management team and operational headquarters already based in the United States, along with the majority of its workforce, the company believes this change will better align with its operational reality. As part of this transition, the company will rebrand as Sunbelt Rentals.

The overarching reason behind the switch is the attraction of US capital markets. Ashtead said they expect the move to give the company greater access to US investors and deeper capital markets, potentially increasing the liquidity of its shares. Additionally, the relocation of its primary listing could position the company for inclusion in major US stock indices.

Losing Ashtead will be a significant blow to London, given the company’s stellar performance over the years, driven by consistently growing profits.