Codan Limited

Section 1: Company Overview and Fundamentals

1.1 Company Overview:

Codan Limited (ASX: CDA) provides technology solutions for customers' communications, safety, production, and security problems. The company operates in two segments: communication and Metal Detection. The core products of CDA are radio communications, metal detectors and mining technology.  

1.2 The Key Positives, Negatives, Investment Highlights, and Risks

1.3 Top 10 Shareholders: The top 10 shareholders together form ~45.07% of the total shareholding. Wall (Ian Baker) and Dareel Pty. Ltd. hold a maximum stake in the company at ~19.21% and ~9.90%, respectively.

1.4 Key Metrics: During FY22, the company reported a gross margin of 56.6%, which increased from 55.6% in FY21. Further, the asset turnover ratio in FY22 was 0.92x higher than the industry median of 0.90x. Below is captured the trend of the asset-to-equity ratio and current ratio since FY19:

Section 2: Business Updates, Financial and Operational Highlights

2.1 Recent Updates:

2.2 Insights of FY22: During FY22, CDA witnessed a surge in its EBITDA by 2% from AUD 158.8mn in FY21 to AUD 162.0mn in FY22. The company reported a final dividend of 15.0 cents per share, which led to a full-year FY22 dividend of 28.0 cents per share. The board expects to continue its policy of paying out 50% of full-year profits as dividends to shareholders.

2.3 Global Presence:  The sales and marketing initiatives across all the business globally had been resumed, which could help in supporting FY23 revenue. The company provided a clear global strategy which is focused on marketing, business development and the release of new products, that the company will execute over the next three years.

Section 3: Key Risks and Outlook:

Section 4: Stock Recommendation Summary

4.1 Price Performance and Technical Summary:

4.2 Fundamental Valuation

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is October 7, 2022. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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