Codan Limited

CDA Details

Codan Limited (ASX: CDA) operates as a technology company providing communications and metal detection products. The company conducts operations in Canada, the United States, Ireland, the United Arab Emirates, and Brazil. It caters to security and military organizations, mining companies, and the government.

H1FY22 Performance Spotlight:

• CDA witnessed a 250% jump in communications revenue in H1FY22. Its recently acquired DTC and Zetron both exceeded first half-yearly expectations. The segment showcased a forward order book of $163 million.
• Its metal detection business underperformed with a 11% drop in sales on a PcP basis. Its Minelab business showed a dip in sales.
• CDA posted its highest half-yearly net profit in its history. Its NPAT reached $50.1 million, up 21% over the prior year. Gains from Minetec sale were offset by one-time integration and restructuring expenses.
• It had witnessed an increase in receivables driven by higher Communications sales in November and December 2021. The company made increased investments in inventories to wade-off supply chain-related woes. This resulted in a deterioration in cash. It had posted net debt of $47.9 million as of December 31, 2021, as compared to net debt of $1.6 million as of June 30, 2021.

NPAT Trend (Analysis by Kalkine Group)

Key Risks: Its recreational market within the metal detection segment is dependent on government stimulus. The quantitative tightening in view of rising inflation may affect the segment profitability. Volatile gold prices may distort the order book from gold miners. Increasing debt levels may inflate the cost of funds. The ongoing civil unrest in Sudan impacted its Minelab business.

Outlook: The company’s GPX6000 gold detectors have received wide acceptance in the developing market. Its acquired Zetron is on-track to exceed the first year EBITDA target of $8 million. CDA plans to release four new products in the near term. It had bagged the largest multi-year contract worth $37.6 million under its Domo Tactical Communications business.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of CDA is trading closer to its 52-week low price of $6.830. The stock has been corrected by ~3.55% in the past three months, making it a decent opportunity to accumulate. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at some premium to its peers, considering the highest ever net profit achieved in H1FY22 and strong order book. For the purpose of valuation, peers such as Elsight Ltd. (ASX: ELS), Ava Risk Group Ltd. (ASX: AVA), Senetas Corp Ltd. (ASX: SEN), and others have been considered. Considering the optimistic outlook, profitability at DTC and Zetron ahead of expectations, adoption of GPX6000 gold detectors, upside potential as indicated by the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $6.950 as on 12 April 2022, down ~1.56%. 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.

CDA Daily Technical Chart, Data Source: REFINITIV 

Infomedia Limited

IFM Details

Infomedia Limited (ASX: IFM) is a technology company providing SaaS-based electronic catalog parts and service quoting software systems for the automotive industry. It also provides parts and equipment that includes Microcat EPC, Microcat Market, Microcat Partsbridge, Superservice Menus, and among others.

Material Business Updates:

• IFM announced on March 21, 2022, that Ellerston Capital Limited ceased to be a substantial shareholder.
• It had appointed Mr. Jens Monsees as Chief Executive Officer and Managing Director effective from May 23, 2022.
• H1FY22 revenue showcased a 24% growth to reach ~$59.0 million. Americas and APAC witnessed a growth of 57% and 15% in topline, respectively. Annual Recurring Revenue surged from $110.9 million in H2FY21 to $114.7 million in H1FY22.
• Underlying cash EBITDA went up 45% to $13.3 million. Reported NPAT dropped from $9.3 million in H1FY21 to $3.5 million in H1FY22. This was due to a $5.7 million increase in non-cash D&A and a $4.8 increase in non-operating expenses.
• Free cash flows went up 150% over the last year. The cash balance stood at $66.15 million as of December 31, 2021.
• It had paid dividends of 2.60 cps, up from 21% on H1FY21.

An Uptick in ARR (Analysis by Kalkine Group)

Key Risks: The automobile OEMs are facing a semi-conductor chip shortage which may affect the volume offtake. Increasing competition in SaaS-based offerings may influence customer churns and contract renewals.

Outlook: IFM is on track to deliver the topline guidance range of $119-123 million in FY22. The newly acquired SimplePart won its first contract from Hyundai Ireland during the first half-year.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of IFM is trading closer to its 52-week low price of $1.255. The stock has been corrected by ~3.69% in the past three months, making it a decent opportunity to accumulate. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the low ROE to its peers and increasing competition in SaaS-based offerings. For the purpose of valuation, peers such as Altium Ltd. (ASX: ALU), Readytech Holdings Ltd. (ASX: RDY), Adacel Technologies Ltd. (ASX: ADA), and others have been considered. Considering the synergies from the SimplePart acquisition, steady growth in the Americas, upside potential as indicated by the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $1.300 as on 12 April 2022, up ~0.384%. 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.

IFM Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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

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