@markeewan thank you for the chart and your summary. That’s extremely helpful!

What we really need is the broker data on this which is proving elusive every time I ask. I'm not selling but won't buy until there's more certainty or some news comes out when we least expect it.

There are four main factors playing into Codan's downtrend, in my opinion (in addition to gold price movements).

1. Donald McGurk, their highly regarded CEO & MD having recently retired (in March, i.e. last month), which they announced in August last year (18-Aug-2021) - see chart below.
2. Afghanistan. On the same day (18-Aug-2021) along with their full year results (for FY21), Codan give some commentary around the Taliban rapidly taking back control of Afghanistan after the US withdrawal - they said, "One of the great strengths of the Tactical Communications business has been our ability to deliver communications solutions to customers in difficult and diverse environments, one of these markets in recent years has been Afghanistan. During FY21, sales into Afghanistan made up 9% of our Communications business. Given the developments in Afghanistan our sales team will continue to focus on the other markets in the Central Asia region." It was therefore expected that they would sell virtually nothing into Afghanistan from that point. However Afghanistan represented 9% of their Communications Division sales and that division represented 22% of their FY21 Group sales revenue (with their larger Metal Detection division generating 75% of FY21 sales and "Tracking Solutions" accounting for the remaining 3%), so that is 9% of 22%, so a bee's whisker under 2% of Codan's total FY21 Group sales revenue was generated from sales into Afghanistan. The argument may have been that their Communication division was expanding due to both acquisitions and organic growth and that some analysts or investors may have expected Afghanistan to become a larger market for Codan in FY22 and future years, and that had now all gone pear-shaped. But it was only 2% of sales at the time.
3. Sudan. We've talked about this, so I won't repeat it, suffice to say that Sudan had previously represented a significant source of revenue for Codan's Metal Detection division sales (which was almost all Minelab gold detectors; Minelab gold detectors are regarded as being the best gold detectors in the world by many, certainly they are right up there in terms of reliability and they do cater to different budgets with a wide range and different price points), and it's fair to assume sales into Sudan are going to be minimal-to-zero until that situation stabilizes, which may well take some years.
4. Lack of Guidance: On October 27th, two days after the Sudan Military Coup on October 25th, Codan held their AGM and they once again declined to provide any revenue or profit guidance, same as in August when they also declined to provide FY22 guidance at the time they released their FY21 results. They also didn't provide any positive Trading Updates until the one they released on 25-Jan-2022 which caused the share price to rise +16.85% on the day (closing at $9.78, being $1.41 higher than the previous day's closing price of $8.37). They promptly dropped -10.22% (-$1 to $8.78) the following day, and they've now drifted down to $7.07, having been as low as $6.83 in intraday trading yesterday (12-Apr-2022). I'll reproduce that trading update below the graph because it's pretty upbeat and was largely ignored by the market, except for a short-lived spike up on the day, which can be seen on the graph below in the latter half of January.

Click on it to make it larger and easier to read. And then they reported their first half results for FY22 on 17th Feb:

You can access the entire document here - but the next page is also worth including here:

Now Alf Ianniello is probably regarded by the market as an unknown quantity because he has just come from 17 years managing Detmold Group which is a privately owned Adelaide-based global packaging company, however the main things to note are (1) that he is a good manager - I know people who work at Detmold and one of my bosses at my current day job (afternoon and evening job actually, where I operate a hommus and dip filler) has just left to go and perform a similar role at Detmold, and another guy I work with has also been offered a job there I'm told and is probably going to make the move also, and (2) he is not a guy who makes changes to stamp his authority, or for other stupid reasons; he is very much an "if it ain't broke, don't try to fix it" sort of bloke. You can see from his comments reproduced above that he understands and values the excellent company culture that Donald McGurk has created and nurtured at Codan, and that he is going to continue to execute on the vision that Codan already has there for the future. He sees the business delivering sustainable growth over the next 3 years. I believe he is going to continue to underpromise and overdeliver just as his predecessor did before him.

Disclosure: Codan is a core position in two of my real-life portfolios and is also one of my larger positions here at Strawman.com.

If we look at it all rationally, Afghanistan and Sudan are out of Codan's control however they both represent just a small portion of their prior-year revenue, the CEO/MD transition was done with plenty of notice and the new guy is a good manager, albeit largely unknown by analysts that specialise in listed companies, remember that Donald McGurk retired; he didn't leave to go run another company, and finally... their decision to NOT give FY22 full year guidance is not unusual, although clearly also not appreciated by the market. I don't have a problem with it, as long as they continue to deliver record results year after year. I haven't even mentioned the global pandemic or supply chain issues because Codan have navigated both of those issues beautifully, particularly the supply chain issues by building up their inventory levels significantly last year. They really haven't put a foot wrong. The market sees better or more exciting opportunities elsewhere. That's fine. That's what the market does. Codan is a high quality company that is going to keep kicking goals for many more years to come and I'm going to be cheering them on as a happy shareholder. Even if the gold price drops like a stone. Although I don't think that's very likely any time soon.

Source: ASX website: https://www2.asx.com.au/markets/company/cda

Hi @Rocket6

I have to agree with you & I too have added today, and if they keep going down will add a little more...the only thing that I can see, that would be causing this slide, is that t Donald McGurk is standing down, and when it was previously announced this, the share price tanked as well.

Also if Bear77 could give us his opinion...(thanks in advance)... I seem to remember that he knows this stock quite well,

EDIT-Sorry MR23 didn’t mean to go over the yop of you, but I would still like to hear from Bear77

Cheers

mmff

On face value it looked to be a really odd SP reaction. As MR23 points out McGurk is off and that is a legit reason to reassess your position but it was well flagged… I’m going to be curious on Bear’s take as I know he follows this one pretty closely. I bought in on SM today and have made a note to do a deep dive with a view to buying in RL if it stacks up.

Thanks for that insight @Greenfinger. Now I can see the market is at least not totally irrational, just somewhat irrational.

I don't know what the impact would be if Codan lost all revenue from the Sudan, but according to this article it doesn't sound like it would be significant:

"Four years ago, if you’d asked him about the company’s golddetecting business, Mr McGurk said he would have spoken about Sudan, Guinea and Mali, “And you’d have formed a view on the attractiveness of our stock based on how I answered those questions,” he said. “These days, we’ve now got 25 markets that are equally as big, so it’s a much less risky revenue prediction than it used to be and I think investors are starting to twig on to that.’’

In FY21 metal detection was 75% of sales. If Sudan was 10% of all detector sales (which is pure guesswork on my part, and sounds far too high a figure) that would be $32.6m.

The company has just announced a deal worth $37.6m, which is just the initial purchase order of a multi-year contract.

Share price is down 19%. Is this rational? I'll let you decide. For me, although I topped up my holding only a couple of weeks ago, this is too tempting to ignore, and my order is in for another small parcel.

28-Oct-2021: 12:26am. All about Sudan today. Donald McG moving on was already public knowledge - nothing new there. Codan remains one of my best investments because I paid $2.88/share for them in July 2018.

However, in terms of whether this is a fair reaction to new news or a silly over-reaction (what?!? the market over-reacting? Imagine!!) ...I would say it's an over-reaction, but then Codan has gone from a hot stock to a "not" stock now it seems, so moves down will tend to be exaggerated, exacerbated by people dumping the stock because it's falling hard (without really bothering to try to work out WHY they are falling hard), i.e. herd followers, plus stop-losses being hit, traders who rely on technical indicators closing out positions and moving on to something else that is heading in the right direction, etc...

You may note that my crosshairs are trained on a spot above on Friday 18-June-2021 where CDA peaked at $19.33. That was their closing price that day, although they hit $19.41 in intraday trading. You can see the -11.8% fall the following trading day, Monday 21-June-2021. There were no announcements made by Codan at that time and no major regime changes around the globe that I can remember, however the following gold price chart (in US$) for the past 6 months gives us a big clue:

Now that low point was reached on the same day (18-June-2021) however that was Friday night in Australia so the market reacted to Friday's circa US$100/oz gold price fall on the Monday (21-June-2021) when our market next opened. Codan went from $19.33 on Friday to close at $17.05 on the Monday.

An even lower gold price was reached at the end of the first week of August. Codan closed that week down further, at $16.83/share, but then recovered from there until the 19-Aug-2021 as the gold price recovered.

What happened on 19th August? Codan released their FY21 numbers and outlook statements, and also announced that Donald McGurk had signaled his intention to retire once a suitable replacement had been nominated by the Board. Codan also said that they had previously been expecting significant sales from Afghanistan (for Comms products/equipment from Codan's Communications Division) but due to the Taliban taking back control of Afghanistan 4 days earlier (on 15-Aug-2021) after the US withdrew their troops, those sales were likely to now not proceed. The CDA share price fell another -8.28% (to $16.18) on that day but continued to slide SE until they hit a low of $11.99/share (closing price) on 29-Sep-2021. They then broke that downtrend and started to rise again, to as high as $13.48 on Tuesday afternoon (closing price), then they held their AGM yesterday (Wednesday 27-Oct-2021) and here we are. And, in my opinion, the fall is mostly about Sudan and the military coup which has resulted in mass street protests and protesters being shot by soldiers, with at least 10 deaths so far - source: Sudan coup: Protests continue after military takeover - BBC News

@Greenfingers explained the expected impact - to give it some context - Sudan represents around 10% of total sales and 14% of metal detection sales - with metal detection of course being their largest division and the source of most of their revenue. However, @lankypom nailed it in terms of an appropriate response:

I don't know what the impact would be if Codan lost all revenue from the Sudan, but according to this article it doesn't sound like it would be significant:

"Four years ago, if you’d asked him about the company’s golddetecting business, Mr McGurk said he would have spoken about Sudan, Guinea and Mali, “And you’d have formed a view on the attractiveness of our stock based on how I answered those questions,” he said. “These days, we’ve now got 25 markets that are equally as big, so it’s a much less risky revenue prediction than it used to be and I think investors are starting to twig on to that.’’

In FY21 metal detection was 75% of sales. If Sudan was 10% of all detector sales (which is pure guesswork on my part, and sounds far too high a figure) that would be $32.6m.

The company has just announced a deal worth $37.6m, which is just the initial purchase order of a multi-year contract.

Share price is down 19%. Is this rational? I'll let you decide. For me, although I topped up my holding only a couple of weeks ago, this is too tempting to ignore, and my order is in for another small parcel.

--- end of excerpt from lankypom's post (above in this thread) ---

If I hadn't been at work this afternoon I also would have been buying and adding more Codan to my Strawman portfolio. Let's see what tomorrow brings.

While I also think this is a major overreaction, Codan does go through periods in which they get a lot of future growth priced in, and that seemed to be the case (to me) when they were trading up at $17 to $19 per share. That said, I reckon they are looking pretty tempting below $11. However I'm wondering how low they might go, now that they are no longer flavour of the month. They might bounce back, but they also might keep drifting down, like they did after they released their full year results in August and the Taliban took back control of Afghanistan. I may not put any significant new money into Codan until they start an upgrade cycle, or good news cycle again, and the chart is showing that the market has forgiven them for the world's geopolitical issues, chaos and regime changes around the globe (that are clearly out of Codan's control anyway). I.e. I'd like to see them heading north east again at a decent clip. A fast rising gold price would certainly help with that. Let's order one of those.

I should mention that the percentage of total revenue that Comms sales into Afghanistan represented (per annum) for Codan is significantly less than annual metal detection (Minelab) sales that Sudan accounts for. Hence the bigger reaction yesterday (Wednesday) than we got in August. Still looks like a big over-reaction, but there is some method behind this madness. And it may continue, at a much slower pace, but still south. I hope not, but it is possible. Once the market is "over" a stock and has moved on to the next big thing, it can take a while for that company to regain the sort of momentum they had when they were flavour of the month. Codan were never exactly a market darling. Mostly under the radar, but they did have some fundies jumping on the bandwagon and talking them up in recent times. It's always easy to plug a company that has a fast rising share price, much harder when the share price is heading south at a good clip. I may nibble at them, but I probably won't get too serious about adding plenty to my existing PFs until they have broken this downtrend for a week or three.

That said, if I was underweight Codan, I'd probably be buying them here. But I do hold quite a few already and I've been trimming the position as they rose (for risk management purposes) or else they would have become a HUGE position for me - relative to my other holdings. Here on SM I've only just added them to my PF last week - for the first time. Great timing, eh!! It's still a relatively small position in my SM PF though.

Thanks soooo much Bear, boy what knowledge! This is such a great site ( thanks Andrew & co)....the amount of sharing from everyone is amazing

+1 from me too Bear - very insightful.

I'm still a very happy holder, and like you have seen very healthy gains from Codan over the years. I joined the register 8 years ago, since when I am up more than 200% (would have been quite a bit more 2 days ago) with an annual return of 24% over that time. Curiously that is almost identical to my returns from CSL, and I would put both these companies in very much the class - enduring Australian success stories with global markets, heavy investments in R&D and many pathways to growth, led by highly experienced management teams.

14-April-2022: Just re-reading this thread and I have to say that last comment by @lankypom (from 6 months ago) does sum up Codan really well. Comparing Codan and CSL, both are "enduring Australian success stories with global markets, heavy investments in R&D and many pathways to growth, led by highly experienced management teams."

I can't argue with that! The market is failing to see the value currently, with Codan making yet another new year-low (sub $7/share) on Tuesday (12-Apr-2022), but that's not unusual. Codan has gone from being much loved by some at over $19/share last June to now trading at around $7/share. The market has clearly moved on. Earlier tonight I gave my view of the 4 main reasons (as I see them) why Codan is being sold down - in a post that should appear below this one in the news feed (and near the top of this thread). It could take some time for the market to get interested in Codan again. In the meantime, I'll collect my dividends and admire the company's outstanding progress and record results. As I said in that other post, I really don't think they've put a foot wrong.

Totally agree @Bear. I think there are few things dragging on Codan’s sentiment and price:

1. A short term drop in cash flow due to the company stocking up on metal detectors ahead of the chip shortages and to save on increasing freight costs (see SWS graph below)
2. Minelab sales into Sudan
3. No guidance provided

The average analyst estimate for FY23 earnings is 62cps (6 analysts S&P Global, Simply Wall Street data). According to Commsec data analysts are forecasting FY23 of 61cps and FY24 of 65cps. If you work on FY23 earnings of 62cps, that puts Codan on a PE of 11.3 just over 1 year from now. Seems Ridiculously cheap for a business with a proven track record, consistently improving ROE over several years (now around 30%), forecast earnings growth of 6%, a strong balance sheet with only 14% debt/equity and a nice dividend yield of 4.2% fully franked (very conservative 50% payout ratio).

I like buying Codan at $7 per share. I think it is a reasonably safe bet to return at least 11% per year over several years (StockVal estimate). There also seems to be some share price support at around the $7 mark (over the past month). I’m accumulating IRL with a long term view. It’s a good opportunity to clean out some lower quality stocks where I have less conviction and move into a high quality business which I believe Codan is.