Codan Limited

CDA Details

FY21 Financial Performance: Codan Limited (ASX: CDA) is engaged in designing, manufacturing, and marketing several high value-added electronic products internationally for businesses, government, aid and humanitarian, and sophisticated consumer market.

FY21 Financial Snapshot, Analysis by Kalkine Group

Clarification CEO Announcement: On 10 November 2021, the CDA board announced the appointment of Alf Ianniello as the Managing Director and Chief Executive Officer of CDA, effective 4 January 2022. In a following announcement the board unveiled short term incentives for Alf Ianniello in FY22, targeting 30% of his fixed remuneration on pro-rata basis, subject to 80% of FY21 EBIT accompanied by other thresholds and conditions.

Key Risks and Challenges

Prudent Working Capital Management Required: Total trade and other receivables increased to $35.0 million relative to $24.8 million reported the previous year. Both receivables and inventory turnover declined for FY21.

Interest Rate Volatility: CDA’s debt size bulged in FY21 for funding the acquisition of DTC and Zetron, framing high-interest rate exposure. If 100 bps vary interest rates for the full year, the profit and loss statement would be $21 million.

Outlook

Surged Anticipated Demand: The company is optimistic towards another successful year in FY22, supported by a strong start with a resilient FY21 run rate. The demand for its metal detection products is likely to stay strong for FY22.

Product Development Strategy: CDA seeks to continue its strategy of making significant investments in new product development and looking for opportunities to bolster profitability by expanding into related businesses offering complementary products and technologies.

Valuation Methodology: EV/Sales 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 gave a negative return of ~5.479% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $9.200 - $19.430. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at some discount to its peers’ average EV/Sales multiple, considering COVID-19 challenges, high financial leverage, and unfavourable working capital movements. For valuation, few peers like Catapult Group International Ltd (ASX: CAT), Ava Risk Group Ltd (ASX: AVA), Nanoveu Ltd (ASX: NVU) have been considered. Given the bulged top and bottom line, current trading levels, potential synergies from acquisitions, and upside indicated by valuation, we give a “Buy” recommendation on the stock at the current market price of $10.350, as of 10 November 2021, 02:48 PM (GMT+10), Sydney, Eastern Australia.

CDA Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

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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