Agreed, thanks @Noddy74 - not a thesis breaker for me, as these devices can't kill people - unless they use them in ways they were never intended to be used; instead, these devices are used to house weapons, or keep them in place. It's a fine line, but I don't regard them as weapons manufacturers. Codan's tactical comms division have been providing secure communications solutions to combat personnel for some time, and I view weapons accessories in the same light as that - used in the field of battle, but they're not selling assault rifles or drones that can easily be fitted with bombs or weapons. But you're right, it may flag red for some ethical filters.
My personal view is that the tactical comms can help keep our brave men and women in the armed forces safe, or safer than they otherwise might be, and so while many things can be used for harm, tactical comms are mostly used for good, especially when you consider they are also used by first responders, fire departments, humanitarian aid organisations, etc. The weapons accessories thing is a harder sell in ethical terms, and Codan may choose to offload it as it's not the reason for the acquisition, however it doesn't bother me personally either way.
It's interesting - Woolworths (WOW.asx) finally buckled to pressure to split out their hotels and liquor business into Endeavour Group (EDV) a couple of years ago, as they were the largest owner of hotels in Australia and were therefore the largest owner of "pokie" machines in Australia - that are one of the main sources of losses for problem gamblers - and EDV did OK initially, better than WOW in fact, rising from around $6/share to over $8/share by August 2022, but they've been running south east since then, and they're now trading in a range between $5 and $5.50 (roughly), so below where they were when spun out. They used to say that pubs always make money, especially those with loads of pokie machines that are located in prominent places and have plenty of customers, which describes pretty much all of EDV's hotels, and alcohol sales (Dan Murphys, BWS, etc.) should also be recession-proof and profitable, but they've lost ground in share price terms since being spun out.
But Woolworths did better without them, right? Sort of. Woolworths are trading a little lower now (at around $33/share compared to $37.12 on the day before EDV began trading - which was 24-June-2021) and are towards the bottom of that $30 to $40/share trading range that they've been in for the past 3 years, however WOW have actually been more volatile over that period, with up and down trends lasting two to three months on average, except the long 11-month downtrend between June '23 and May '24, whereas EDV were in a 21-month downtrend mid-August '22 to May '24, and are around the same levels again now as they were at the end of that downtrend.
I'm not into technical analysis much at all (actively avoiding it for the most part) but I do take notice of basic uptrends and downtrends, and to me that 21-month downtrend that Endeavour Group have been in for most of their listed life is more about money flows than underlying profitability. I could well be wrong, but I'm thinking there's a large pool of investable capital that consider EDV to be outside of their investable universe, i.e. due to ethical filters.
Interestingly Woolworths didn't have a problem of that magnitude when Endeavour was still 100% within the Woolworths Group.
Many of the world's largest fundies, like Blackrock, who are the largest fund manager in the world including managing the largest pool of ETF money in the world (both index tracking and discretionary / smart / targeted ETFs), work on percentages, so for instance they won't exclude a company that has 10% of their business in thermal coal (from their discretionary managed funds and "ethical ETFs") but they will avoid any company (within that discretionary side of their business) that produces at least 25% of their group revenue from thermal coal - or at least those were their 2020 numbers - see here: https://www.morningstar.com.au/insights/funds/198858/blackrock-goes-cold-on-coal-and-makes-climate-change-its-benchmark
That may have changed since 2020, but you get the idea. There are limits - and they will differ between fundies - where the fundie or asset manager has any ethical filters in place at all (some don't have any).
So I'm not worried about Codan being excluded from any large fundie or asset manager's investing universe because of what we are discussing here with firearms accessories as a tiny fraction of their overall business.
So I have my own ethical filters, and I don't ever feel the need to justify those to anyone, because they only apply to me, and I'm not pushing them on anyone else or trying to change anyone else's investing behaviour, they are just my own criteria that I am comfortable with personally, and then there is the risk of a company being excluded from the investing universe of large fundie and asset managers because of their own individual ethical filters or investing guidelines.
That risk should be considered by all investors, regardless of their own personal views, because a company that large and significant sections of the market consider to be uninvestable will likely never trade at or above their intrinsic valuation, or the valuation that people without those same ethical filters might ascribe to those companies, simply because there is less demand for their shares. Basic supply and demand.
Doesn't mean you can't make money out of them. Plenty of people have made money out of thermal coal companies in recent years after they got totally bombed out, partly in response to Larry Fink's stance at Blackrock in January 2020 and other fundies following suit - or the expectation that Larry's rules at Blackrock might become industry norms, or be copied / emulated by other large money managers and fundies.
I'm not saying you can't make money from these companies, I'm just saying that the reality of those companies likely always trading at a discount and a discount that may increase over future years needs to be considered, because it's real, regardless of our own personal views.
I'm not saying these companies will go broke either. They may well continue to be very profitable for many years. I'm just saying that they will trade at lower levels than they otherwise would if they were in a different industry that did not cause them to be screened out by some market participants' ethical filters, all other things being equal. Reality. Know it. Use it to your advantage if you can and wish to. But don't think it isn't real, because it is.
It's not a matter of right and wrong. The market can remain irrational longer than you can remain solvent.
But that does NOT apply to Codan. In my opinion.
