Codan: beaten up share price meets resilient growth

Tue 25 Jan 22, 1:59pm (AEST)
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Key Points

  • Codan shares are down almost -50% from June 2021 highs
  • The stock trades at a price-to-earnings of just 19, down from highs of around 30
  • Well-maintained inventory levels has helped deliver another successful period of growth

Codan (ASX: CDA) has risen to the occasion, closing out the first half of FY22 strongly with a 32% increase in sales to $257m. The company’s stock rose 13.4% as the market opened. 

Codan, which sells a broad range of communications, metal detection and mining technology products, has seen its valuation halve from around $3.5bn in June 2021 to $1.8bn.

Its declines are broadly consistent with the recent rotation away from technology stocks, with the S&P/ASX Info Tech Index down -27% over the same time period.

Last year, Codan acquired two communications companies which operate in the military and emergency response space. Codan said that both companies exceeded first half profit expectations. 

Codan expects net profit to be around $50m, a 21% increase compared to a year ago. 

The tenacious result was underpinned by the company’s conscious decision to invest in increased levels of inventory, enabling the company to successfully maintain supply to customers. 

Codan will provide its full first half FY22 performance and outlook on Thursday, 17 February. 

No mans land

From a technical perspective, Codan faces a long, uphill battle.

The recent share price declines have likely trapped a lot of shareholders, with the likelihood that upside will be met with selling pressure as investors exit their positions.

CDA 2022-01-25 13-13-24

Codan price chart, TradingView

Codan experienced a 'death cross' on 27 October (50-day moving average crossing the 200-day moving average). Its shares tanked as much as -25% since the crossover.

What brokers think

One Australian broker believes there's upside potential to Codan. Though, the latest note comes from October 2021.

  • Macquarie - Outperform rating with $15.20 price target (55% upside)

Macquarie expects Codan's GPX6000 metal detector launch in developed countries to prop up revenue. While DTC and Zetron acquisitions will further push the company's profits into record territory.

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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