I learnt first hand yesterday how true it is that we feel a loss much more acutely than a gain.

I sold out of JAN for a 68% loss, after holding patiently for 3 years, and felt really bad about it. Yet it was only a speculative and hence relatively small holding in my RL portfolio. On the same day my WTC holding gained more than double the dollar value that I lost on JAN, thanks to its excellent results announcement.

The fact that paper gains are ephemeral is perhaps the main reason why I feel the realised loss that much more acutely. After all the market panic of only 2 weeks ago has shown us how quickly things can change.

Still, it looks like the CDA result today is prompting the same market reaction as the WTC results yesterday. This is my longest held company (11 years). Maybe I am a genius after all.

The investor call this morning was a curiously muted affair, possibly because the results for the full year have already been announced so there were no surprises. (But the market still reacted negatively to the 10% drop in revenue and 33% drop in profit.)

The Communications segment now accounts for 60% of revenue, has seen its profit margin increase from 21% to 25%, with management targeting a 30% margin within the next 18 months. Revenues are expected to increase by 10-15% in FY24. There is already a forward order book of $163m, compared with the $274m achieved by this segment in FY23. It seems like most of these forward orders fall to the Zetron business. Most Zetron sales are in the US and Eagle has a dominant presence in the UK with complementary products, so Zetron has a significant cross sell opportunity into the Eagle customer base.

I find it frustrating that Codan does not break out the performance of the different businesses within its Communications segment. I get the sense that both DTC (military comms) and Zetec (emergency services command and control systems) are growing at similar rates. Zetec has recurring revenues due to support agreements (30%, expected to increase since 44% of Eagle revenue us recurring), but I don't know how much of the $273m Communications revenue falls to Zetec, therefore there is no visibility into the quantum of recurring revenue. There is also the Broadcast Wireless Systems business in the Communications segment, but all the annual report had to say about this was that "broadcast was successful securing orders for several large international sporting events".

I am still a patient holder of Codan in my RL portfolio. It clearly isn't a shoot the lights out company, but it is a solid long term performer from which I have seen 14-15% annual returns over many years, which is easily good enough to retain its place in my portfolio.

The company released a trading update after market close today. The headlines are pretty dismal and I suspect the market will react savagely tomorrow. Revenue is down 10% and underlying NPAT is down 35%.

The metal detection business, with its biggest market in war torn North East Africa, and with the disappearance of the Russian market, continues to struggle, despite a continuous pipeline of new product developments which we are always told are well received.

The communications business is the rising star, accounting for well over 50% of revenue now. Revenue in this segment increased 14% and profit margin improved from 21% to 25%. (Still less than the detection profit margin of 32%). The forward order book of $163m is 60% of the entire FY23 revenue for this segment.

I still have great faith in the management of the company, and admire the way they have pivoted the business to a more predictable and growing source of revenue. No doubt there will be more short term pain for rusted on shareholders such as myself, but there is still a lot to like for those willing to be patient.

Half year results are pretty much exactly as communicated in a market update 3 weeks ago, with revenue up 32% and NPAT up 21%. Thanks to the acquisition of 2 communications businesses last year this segment is now a much bigger contributor to revenue, at 46% of the total. This makes for a nicely balanced business which is just as well since the metal detection segment had an 11% decline in sales mainly due to the civil unrest in Sudan, which is the biggest market for gold detectors. I wouldn't be surprised to see the communications segment start to dominate in coming years. It already has a forward order book of $163m, $71m of which is expected to ship in H2 FY22, and which includes the companies largest ever contract of $37.6m. Two thirds of the engineering (R&D) spend in the first half was devoted to the communications segment.

Against the backdrop of supply chain difficulties, Covid and civil unrest this was a fantastic result. The market didn't like it, which shows just how hard it is to please at the moment.

Codan has announced the appointment of a new CEO, Alf Ianniello, to replace Donald McGurk whose retirement was announced when the FY21 results were published.

Alf Ianniello was CEO of Detmold Group for 9 years. This is a packaging company with 3000 employees, manufacturing in 7 countries, but like Codan with headquarters in Adelaide. Revenue somewhere in the region of $500m to $600m. (It is a private company so no accounts are available.)

Donald McGurk's salary package in FY21 was $1.5m, with 59% of that being performance related. The new CEO has a base salary of $1m, compared to $585,000 for the outgoing CEO, and he will also qualify performance-related incentives with a target value of 30% of his base salary, so the overall package is very similar to the outgoing CEO.

The new CEO sounds like a safe pair of hands, and is also a known quantity since the Codan chairman David Simmons was also a board member of Detmold for 8 years. Although he will not be familiar with Codan's products and markets, he has a degree in electronic engineering, so should not find it hard to come to grips with the technologies which are Codan's specialisation.

The market responded to the announcement with indifference.

As we know, FY21 was the best ever year for Codan, despite the disruption in the Communications business caused by diversion of government budgets and attention because of Covid. (Conversely Covid was estimated to be a $15-$20m tailwind for the metal detection business.)

My takeaways from the AGM:

"Q1 results are ahead of previous year"

"We are confident of delivering a record result for the first half of the year"

'Nuff said.

CDA announces $37.6m AUD military contract, 60% to be delivered in FY22, thanks to it's recently acquired DTC subsidiary.

Rocketship emoji

At the risk of repeating Bear, these were the notes I took as I listened to the investor call today.

Codan reported their best ever year, and the headline numbers were very impressive:

• Revenue up 25.6% to $437 million
• EBITDA up 34.8% to $139.8 million
• Underlying NPAT up 52% to $97.3 million
• Fully franked full year dividends of 27 cents per share, up 46% year on year.

Metal detection sales up 38%, with growth evenly split across the 3 segments (hobby, prospector, mine detector). A very strong start to FY 22 has been flagged, with high demand and no supply chain constraints. 
Continual innovation of products has allowed Codan to maintain market leadership position in this business segment, which accounts for 75% of sales.

Communications business revenue is 22% of total, and sales have declined 8% largely due to government budgets being redirected to covid-related health initiatives. This business has been given a shot in the arm with 2 acquisitions of DTC and Zetron, for a combined cost of $174 million. This gives them a broad portfolio of market-leading communications products across voice, data and video targeted at the military, first responders, aid organisations and similar. These aquisitions are expected to add $22m to EBITDA in FY22, and were funded with cash generated by the business. Further acquisitions can be expected.

Codan have shown smart capital management with the divestment of the Minetec business to Caterpillar, who are much better placed to sell into the mine market, for $18m. In addition Codan will continue to supply the product to Caterpillar for 5 years, purely in the role of a contract manufacturer.

The only bad news in the report, and presumably the reason for the negative market reaction, is that CEO/MD Donald McGurk is resigning after 21 years with the company, 11 of those as CEO. Just to put this in context, Codan has a very strong ang long-tenured senior management team:

• Paul Sangster leads Tactical Communications business, and has been with Codan for 8 years;
• Peter Charlesworth who leads the metal detection business has been with Codan for 17 years;
• Michael Barton CFO has been with Codan for 17 years.

In the investor call, the main risks discussed for the coming year were:

• Transport disruption caused by Covid restricting ability to supply from Plexus contract manufacturing in Malysia 
• IC supply difficulties in second half of the year

Codan is the longest-held company in my portfolio, with annual returns of 31% over 8 years, so it is no surprise it has grown to 9% of my portfolio. This is overweight given I try to equal-weight across 20 companies, but I hold with such high conviction that I cannot bear to part with any of my shares.