Codan - CDA

[Lizard]

I've glanced at this company a few times over the years, but never got much closer. Thought it was time I made the most of the rainy day (and the fact that CDA was an early reporter this season) and gave it a new thread. There is a prior thread by the venerable yogi, but I'm sure he won't turn in his grave if I start one from a slightly less astrological viewpoint. :cool:

Codan was founded in 1959 and developed a diverse range of niche value-added products for communications and broadcasting. It listed on the ASX at $1.10 per share in 2003, with a market cap of $178m and revenues of $113m. Existing shareholders retained 83% of the shares, making this a very tightly held company. Initially, the company enjoyed strong results, with 2004 revenues rising to $132m and a 50% increase in NPAT to $16.7m. As a result, the share price peaked at $2, close on a year after the date of the prospectus.

As so often happens in the case of recent listings, the gloss immediately began to tarnish. Strengthening of the AUD led to falling revenues and a flat NPAT result in 2005. This was followed by a less than inspiring AGM commentary regarding tough environment, exchange rate challenges and costs of buying market share in new satellite communications and digital microwave radio products.... Announcements segued into a downgrade ditty that confessed to a 50% reduction in first half forecast and promptly took the share price back below issue.

With revenue back at $117m and FY NPAT at $8.5m, 2006 should have been the bottom. The 6cps dividend was maintained - even if it did have to come from borrowings. Generous as it was next to the 75-90cps that the shares had traded to, the share price was soon back at $1.50. 2007 started out well... the Chairman retired while he was ahead... and then the 2007 crisis waylaid them. High AUD and acquisition costs didn't help so revenues of $121m translated through declining margins to a $11.2m NPAT. However, strong cashflows allowed the repayment of debt and an increase to the dividend to 6.5cps. Yet the GFC pressures continued, taking the price below 50cps in late 2008.

With 90% of revenues coming from offshore, the company used hedging as a temporary solution, while developing an investment plan to move much of their manufacturing into offshore markets. In addition, the company chose to make a major acquisition in the form of Minelab - a metal detection equipment specialist (including land mine detection). Cost was $70m and fully debt-funded. These changes boosted 2009 revenue back to initial post-listing levels of $132m, with NPAT at $12.8m.

A boom in "artisanal mining" and "countermine" sales from Minelab, saw revenues surge to $189m in 2010, with underlying NPAT of $31m. The AGM speech was quick to point out that this was unlikely to continue. A creditable performance was still achieved in 2011, with revenue of $169m and NPAT of $23.4m, while the dividend was raised to a total of 9cps.

A small acquisition, Minetec, was made in early 2012, adding a range of mine safety-based communications equipment to the range. This was followed by the sale and write-down of the loss-making satellite communications business. The FY result has now been released, showing revenues from continuing operations of $179m and underlying NPAT of $27.9m. A half cent increase to the dividend brings total to 9.5cps (fully franked) for a yield of 6.3% on current share price of $1.50. Diluted PE is 9.0 and forecast is currently very positive for existing business.

In addition, CDA has just announced another mid-sized acquisition of Daniels Electronics Limited, a Canadian based supplier of land mobile radio communications solutions in North America. Cost of acquisition is $A24m plus up to $A1.9m earn-out and initial 2013 EBITDA contribution (10 months) expected to be $2m after costs. Interestingly, the company has used this opportunity to make a significant placement of 8.9m shares, along with an SPP to existing shareholders that could result in a further 3.6m shares being issued. This should be a strong positive for liquidity, as so few shares were sold to the market at time of listing (followed by one SPP in 2009). This should therefore add more than 60% to the current free float.

The placement to institutions was completed at $1.40, so this could be an opportunity to acquire shares as those are placed into the market (quoted from 15 August). Although CDA has been a bumpy ride for holders, they have demonstrated potential to grow over the long term and short term forecasts are positive, supported by a good dividend. Increased liquidity should make them more attractive and the opportunity exists to acquire over the next month or two (at around $1.40-$1.50?) as placement and spp shares are allocated. Goes ex-div (5.5cps) on 10 September. Current market cap $246m and is included in All Ords.

[Lizard]

Hi KW, Yes, have followed the Boat Fund from early days, but don't think we share any picks. Can't guess their mystery stock - the closest I've got on my list would be STS, BYL and NAM - and I doubt very much that it is any of those.

I must have a look at the FXL result - one I looked at in April 2011 at $2.07 and didn't see enough value, so it will be good to see what I missed.

[mark100]

I follow TBF too as I tend to follow similar stocks. Haven't been able to guess the latest pick so far

[Lizard]

The placement to institutions was completed at $1.40, so this could be an opportunity to acquire shares as those are placed into the market (quoted from 15 August). Although CDA has been a bumpy ride for holders, they have demonstrated potential to grow over the long term and short term forecasts are positive, supported by a good dividend. Increased liquidity should make them more attractive and the opportunity exists to acquire over the next month or two (at around $1.40-$1.50?) as placement and spp shares are allocated.

Was able to pick some up at $1.44. Has paid the 5.5cps div and now looks to be on the way up again at $1.59, but would be good to see it push on past here to new high for the year.

[macduffy]

Well done, Lizard!

CDA hit a new 52 week high of $1.63 today. I should have followed your lead on this one but I already have an over-diversified Aussi portfolio........

:(

[steve fleming]

Was able to pick some up at $1.44. Has paid the 5.5cps div and now looks to be on the way up again at $1.59, but would be good to see it push on past here to new high for the year.

From Richard Hemming (under the radar report) :

Ausbil gives us the low down on the five big themes that are affecting investment markets at this point

THEME 1: THE HUNT FOR INCOME
Prunty: “Certainty of yield is important, and the market is willing to pay up for increasing certainty, which is a trend in both large and small caps.”
The proof is in the pudding, which in this case means Australian 10 year bonds, which are only paying a yield of 3 per cent. But the Ausbil small caps team sees a trend that favours small caps with growing dividends.

---------------

Almost all the small/mid caps that I am in that are paying decent dividends are being re-rated to multi-year highs.

As interest rates are only likely to trend lower, this 'hunt for income' is likely to continue.

[macduffy]

And things are expected to get even better!

Chairman's address from today's AGM:

http://www.asx.com.au/asxpdf/20121017/pdf/429fkqhfnmf885.pdf

[Lizard]

Wow, better than I'd expected. I was working on $34m NPAT for full year, so my valuation now moving to $2.31 and I think good chance of getting there before FY. Currently around $1.83.


Given the continued strength of our business, it’s likely that we will post a very strong net profit after tax result for the first half. The Board is of the view that net profit after tax should reach $25 million dollars for the first half, which will be more than double that of the first half last year and will be the highest half year profit number in the company’s history.

For the full year we remind ourselves that we are living in uncertain and cautious economic times which can continue to delay purchasing decisions. We also have competitors, including counterfeiters, whose actions could put pressure on revenue and margins. Although it is early in the year, based on current momentum and a detailed consideration of management’s full year forecast at this morning’s Board meeting, we would expect to substantially exceed the company’s previous record underlying profit of $31.1 million and expect it to be in the region of $40 million, which would represent an increase of more than 40% over the result achieved in 2012.

[soulman]

Wow, better than I'd expected. I was working on $34m NPAT for full year, so my valuation now moving to $2.31 and I think good chance of getting there before FY. Currently around $1.83.

Not sure how cyclical CDA business is but management is forecasting a NPAT $25 mil in the first half and a conservative full year of $40 mil. I am in, getting a few in the afternoon giving the low future PE ratio and decent div yield.

[Snow Leopard]

Wow, better than I'd expected. I was working on $34m NPAT for full year, so my valuation now moving to $2.31 and I think good chance of getting there before FY. Currently around $1.83.

I should have just put an order in when I read the above, but of course I didn't !

Anyways, I have made amends and have acquired some this morning
(? why does the price never drop to my asking price until after I have raised it ?)

For what it is worth, I value CDA at $2.25 now aiming for $2.33 by 30-Jun-2013

best wishes
Paper Tiger

[Lizard]

I should have just put an order in when I read the above, but of course I didn't !

Anyways, I have made amends and have acquired some this morning
(? why does the price never drop to my asking price until after I have raised it ?)

For what it is worth, I value CDA at $2.25 now aiming for $2.33 by 30-Jun-2013

best wishes
Paper Tiger

At least you still got off to a good start - now $2.09 on solid turnover. :)

[soulman]

PT and Liz, the market is irrational. It's more than your target price now with more than a few months to spare.

[NZSilver]

CDA was the monthly recommendation on an payed australian stock newsletter that came out at the end of last month. Hence price increase.

[Lizard]

PT and Liz, the market is irrational. It's more than your target price now with more than a few months to spare.

Yes - have a few in that basket of shares that I like, but no longer at a discount to my current valuation... reduced AMA yesterday and VTG today. CDA can stay for now - I think that with the announced increase in first quarter revenue, the risk is more to the upside than the down on valuation. (Plus I don't have quite as much "profit" to take here yet).

[mark100]

Massive upgrade again. FY13 EPS could be over 30c now with consensus around currently 22c. This could see closer to $4 in the coming months

[Lizard]

Yes, great result! I'm pretty happy with that and agree that will likely continue north from current $3.00.

[Snow Leopard]

Good to see that something managed to end the day significantly up.

I definitely owe Lizard a bottle, or two, for bringing this one to my intention.

best wishes
Paper Tiger

[soulman]

Massive upgrade again. FY13 EPS could be over 30c now with consensus around currently 22c. This could see closer to $4 in the coming months

It's very close to $4 now Mark and it's been a week since your post. You can credit this to tipping forum, stockbrokers and traders for a surge like this. $4 is just a few days away.

[mark100]

Yes it's getting a little too easy soulman. Caution is warranted.

[Snow Leopard]

Codan has entered the ASX300 which explains the sudden late price and volume surge yesterday.

So I would now be able to buy it for my pension fund, should I wish.

Best wishes
Paper Tiger

[Snow Leopard]

Not a great day for Codan, down from whatever $3.26 plus 32c is to $3.26, a near 9% fall.

Now I thought that they made gold detector as one of their products but the fall seems to suggest that they are actually gold miners.
I will have to go and read the words in the report and not just look at the numbers.

Best Wishes
Paper Tiger

[AndyLP]

I'd have to double check the figures but from memory metal detection represents well over half Codan's revenue. Would be interesting to know how many metal detectors they're selling to people looking for precious metals. There's a chance that all the bad press gold is getting is behind the recent CDA price slump..

[mark100]

I just got back in at $2.90. Maybe a bit premature but it's due a bounce!

[mark100]

And out at $2.95 - decided I wasn't game to hold overnight!

[Snow Leopard]

And out at $2.95 - decided I wasn't game to hold overnight!

Was definitely a wise move.

You have to wonder when this will turn around, stop or just stop dropping so precipitously.

Best Wishes
Paper Tiger

[tosspot]

yea what in the world has everyone running for the hills so badly. They posted excellent half year results and a positive outlook. And they dont mine gold they sell equipment to gold miners so surely not the gold plunge especially not more of a plunge than gold miners themselves. keeping an eye on this one.

[AndyLP]

There was a ramp in the price after the Motley Fool Australia recommended Codan in October. In their report they mention "Sales of Codan metal detectors have been enhanced by a continually high gold price - making prospecting a particularly lucrative activity. A lower gold price might make prospecting less attractive - and hence hurt sales." While Codan is def not a mining company, they have recently started a mining technology business.
IMO the market has overreacted to gold price drop. PE is down to 11. Looking quite cheap now..

[mark100]

I bought again at 2.73. Might be a bit premature but the sell-off looks overdone

[Snow Leopard]

Back in at Open ($2.64).

Let us see how it goes....

Best Wishes
Paper Tiger

[AndyLP]

Back in at Open ($2.64).

Let us see how it goes....

Best Wishes
Paper Tiger

Looks like you nailed it...

[mark100]

I'm out for now. 10% bounce on my purchase price is good enough. I expect a bit more volatility now the medium term uptrend has been broken

[Snow Leopard]

Codan released an Investor Presentation today.
Seems that the Gold Detectors are for the 'Artisanal Small Scale Miner' or one man, his detector and a shovel.

Strikes me that this market is a lot less sensitive to the price of gold than the big boys.

Still in at the end of the day.

Best Wishes
Paper Tiger

[Snow Leopard]

Back in at Open ($2.64).

Let us see how it goes....

Best Wishes
Paper Tiger

Closed today at $3.47. This going a lot better than I had any right to expect.

Best Wishes
Paper Tiger

[Snow Leopard]

I sold out again this morning at an average $3.34 and a bit.
25% in two days plus the initial 75% between October last year and last week for a compound 119% profit.

It has definitely served me well.
I have no idea where the market intends to take this next but I hope that it reappears on the buy list.

Best Wishes
Paper Riger

[tosspot]

I sold out again this morning at an average $3.34 and a bit.
25% in two days plus the initial 75% between October last year and last week for a compound 119% profit.

It has definitely served me well.
I have no idea where the market intends to take this next but I hope that it reappears on the buy list.

Best Wishes
Paper Riger
well done. I was watching it around 2.70 a few days ago but had no free funds to buy it. Im guttered I missed the boat now.

[Lizard]

Nice work, PT.

I'm in the slow boat these days and still holding. The volatility has surprised me in both directions - my position was on the list for a trim, but I think the market trimmed it enough without my help. :ohmy:

Maybe next time.

[AndyLP]

This took a serious beating today. Civil unrest in Africa apparently affecting sales. Possibly an overreaction from the market on this one?

[Lizard]

Yes - market in no mood for downgrades. Seems a bit over done, but difficult to say at this point... doesn't sound like the most stable of markets for them!

[steve fleming]

Something smells a bit here

There was that big plunge mid-April, followed by an ASX please explain in which CDA said there was no issues.

Now, they are saying there have been issues in the African markets for some months.

Not a good look for a stock that had become quite a darling among the Roger Montgomery set (although I am sure Roger will have conveniently sold out prior to this downgrade)

[Huang Chung]

He always does.....

[tosspot]

my god this is carnage. opportunity i feel though. It will be very hard to pick the bottom. I think ill wait and see how it plays out for a bit first

[blackcap]

What is happening with this stock. Man that is a sell off if there ever was one. That is in total contradiction to the statement released by the company on 14th June. Has anything material happened since then? Shouldnt the company be reporting that to the market? I have seen too many of these situations where after the event the company said.... we need to revise... but by then it is too late. Still its getting tempting around these levels isnt it.

p.s catching falling knives not really my favourite pasttime!

[AndyLP]

I'd say at least some of the sell off is due to the long term prospects looking rather dodgy at best. If the future success of Codan is tied to stability in Africa.. well.. its a bit of an unknown.
Doesn't help that the company's 'profit guidance' was cagey to say the least.
Luckily this is one of my smaller holdings but it still stings..

[tosspot]

I just jumped in at $1.65 I just cant see it dropping any lower is almost halved in the last 2 days of trading.

[blackcap]

In its favour is that debt levels are low. Instability in Africa? Isnt it always relatively unstable there? The announcement was cagy indeed but falling by 50%... hmmm hmmm falling knives etc. I will do some more research and have a look later. Maybe its a buy on the way up story.

There really is not that much information available on this company. I like it that it has little debt, but their announcment was rather meaningless when forecasting FY 14. If the profit is expected to be $45million then that would suggest second half earnings of $+- $18 million. Not too bad, but when did the rot set in. Ie is this because of a bad last 2 months and if so this could impact badly on FY 14. If it is from the last 6 months well, I could live with that.

I also note that their huge increase in profits and revenues from H/Y 13 was mainly driven by their metal detection division, so if it is this that is impacted it could fall back quickly to profits closer to $20-30m per annum. More really is needed from the company and as such this could be a good opportunity to enter. I guess what I am trying to say is if you bought at $1.65 would you be comfortable with a profit of $20-30m and EPS of 11-17cps (annually). The fact that debt is negligible is something I find rather attractive as is their seemingly healthy working capital ratio.


p.s Lizard, do you still hold a view on this company?

[Lizard]

Hi blackcap - and a belated welcome back! :)

My view on this company is slightly marred by irritation that I have inexcusably held for the whole ride - each time I knew I should sell down, I put it off for a "better day" and then got busy again...:ohmy:

That aside, I think they are back to "cheap" and the reaction is overdone. However, that would be more of a short term trading opportunity than the longer term I am more typically keen on - they will need to prove themselves again and allay concerns re earnings instability and transparency. That's not a quick process - and could take another 15-18 months to find a new longer term uptrend.

[blackcap]

Hi Lizard and thanks for your thoughts. Interesting to see that many of the same people are still on this site.
I spoke with a friend this afternoon regarding this company because he sometimes likes to buy Aussie stocks that are oversold and catch the bounce back up. This looked like a classic example. Sympathy re your plight, its an easy trap to fall into. Always take some profit when you can works well for me. I have an associate who cannot sell regardless. He has to his horror experience many train wrecks.
I am also keen on the long term with most my stocks but isnt this a severely harsh reaction to a slight (ok I may have changed the definition of slight slightly here) change in profit guidance? Or maybe it just looks harsh because I am used to the NZ market where something like this falls over the space of a few weeks. Thanks for your thoughts on "proving" themselves and "allaying fears". Will take it on board.

p.s If the Dow were to drop another 1% overnight it could just propel CDA that much lower..... (yes if tomorrow is positive it could bounce it too...)

[AndyLP]

Looks like there was a decent chunk of shares bought by various directors over the last couple of days. A good sign?

[tosspot]

Price beginning to pick up again. Technicals all positive. Lets hope a recovery is underway.
I hope so, I bought in at 1.65 when it first dropped, it just needs to break that damn 1.75 appears it wont be today

[AndyLP]

Sold out of this one.... seems to be too attached to the gold price and the stability in Africa causing that latest downgrade is outside my scope. All the best

[steve fleming]

Not a good look for a stock that had become quite a darling among the Roger Montgomery set (although I am sure Roger will have conveniently sold out prior to this downgrade)

One of the Montgomery guys was on YMYC during the week and confirmed that Montgomery had exited its CDA stake in the 'high $3's".

They subsequently bought back at around $1.50 and now have a $2 valuation on CDA.

For someone that goes on and on about about long term investing and about buying into great companies that will be around in a generation's time, they certainty know how to trade short term movements.

[Lizard]

I have a target of $2.60... hope I'm not being too greedy. But having missed selling first time around, I'd quite like a half-decent exit. :ohmy:

[Lizard]

Nice trade, KW! :)

[blackcap]

I sold out today, I think its going to hit a bit of resistence at the 200 day MA, and the hourly charts seem to indicate resistance at $2.20. Also looks like a bearish doji star is forming today. Nice trade though for a 31% gain in a month :t_up:

Geez that was good timing KW. Well done :)

[tosspot]

I only had a brief look at the report but it seems ok I cant see why the price got hammered so badly. may be an entry point on Tuesday or Wednesday if the usual 2 days pounding happens with this stock

[Lizard]

Thought that bumper year might have translated to a big increase in cash... not so as it appears to have nearly all gone into inventory build. Would have to hope they don't need to write any off.

Other than that, the huge dependency on detector sales seems not a great thing and they will need to find a less volatile sector for growth to attract investors rather than traders.

[Lizard]

And now down to $1.30 and admitting on the back of an ASX query that they need a trading halt to re-jig their forecasts... epitomising the sharemarket principle that "when it starts going wrong, it usually just keeps getting worse"

[AndyLP]

And now down to $1.30 and admitting on the back of an ASX query that they need a trading halt to re-jig their forecasts... epitomising the sharemarket principle that "when it starts going wrong, it usually just keeps getting worse"


Super fishy this one! Can't wait to see what the new guidance is.. starting to think I didn't do too badly taking a small loss at 153. P/E of ~5 though.. watching closely.

[AndyLP]

oh wow.. profit downgrade, and opening with 47% of what it was worth wiped off on open. Amazing

[Joshuatree]

A PIE fave with CDA Directors buying up @ 40c recently. Anyone holding?
A snippet from PIE; below.

"Revenue of $103.9 million was up 60% on 1HFY16 andEBITDA of $37.1 million, was up 152% on 1HFY17.Codan’s result was above the top-end of guidance given inNovember 2016 and was accompanied by an upgrade toguidance and a special dividend. The upgrade to guidanceand special dividend this early in the year makes us thinkthat this golden opportunity has plenty more to give "









Revenue of $103.9 million was up 60% on 1HFY16 andEBITDA of $37.1 million, was up 152% on 1HFY17.Codan’s result was above the top-end of guidance given inNovember 2016 and was accompanied by an upgrade toguidance and a special dividend. The upgrade to guidanceand special dividend this early in the year makes us thinkthat this golden opportunity has plenty more to give.

[Snow Leopard]

{Date: 23-Apr-2013} I sold out again this morning at an average $3.34 and a bit.
25% in two days plus the initial 75% between October last year and last week for a compound 119% profit.

It has definitely served me well.
I have no idea where the market intends to take this next but I hope that it reappears on the buy list.

Best Wishes
Paper Riger

I have not owned shares in Codan in the five and half years since that post, but today I opened a letter which confirmed the payment into the bank of a dividend from that time.

Whilst the initial problem was me being a bit slow to change my details the ensuing half decade of goings on would make for a good and quite lengthy novel.

[Taijon]

Hopefully you have been back in these past couple of years SL. Share price now over 11.50 and commentary at today's AGM suggests another record profit is on its way. Must be a lot of people looking for gold in different parts of the world - detectors are still the mainstay of the business.