Codan (ASX:CDA) has been on a wild ride over the last three years. Just before the COVID crunch the share price hit $8.50. It quickly fell to a low of $3.90 but then began a remarkable rebound topping out at $19.36 in June 2021.
It then gently tumbled all the way back, bottoming out at $3.64 in December last year before beginning a steady climb back to the current level of $5.60. Clearly the market is having trouble settling on a valuation, and large sums of money have been made and lost along the journey.
A lot of this has been driven by the unusual impacts caused by the pandemic, along with a tendency to extrapolate short term results well into the future. But the company has also been on its own transformative path during this period.
Codan derives its revenue from metal detectors and communications equipment. The biggest market for metal detectors is prospectors in Africa, but they are also sold for recreational and professional purposes throughout the world.
Communications consists of high-tech radio equipment. These products are sold through large contracts mainly to government agencies, law enforcement and military customers. During 2021 Codan made two large acquisitions in the communications space. Domo Tactical Communications for $US88 million and Zetron for $US45 million. This has increased the contribution to revenue from the communications segment from about 30% to 65% at the most recent half year result.
Source: H1 FY2023 Codan Limited Half Year Results, 16/2/23
The tracking solutions business, Minetec was also divested during 2021. This business had never managed to gain much traction.
These structural changes to the business place it in a good position moving forward. Whereas the revenue from metal detectors can be quite volatile and is based on many small sales, the revenue from communications comes from large contracts with blue chip customers. The geographic breakdown of sales has also shifted. Previously sales were about 50:50 between the developing world and developed world, whereas now developed world sales have increased to about 85%.
Codan is a global business headquartered in Adelaide. Only about 10% of revenue comes from Australia. They also have engineering and manufacturing centres located throughout the world.
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