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Dividend Portfolio: Codan Ltd (ASX: CDA)


Published 11-APR-2019 00:00 A.M.


2 minute read

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Overview: Codan Ltd ("Codan", "the Company") is an Australian technology company focused on electronic hardware solutions & equipment. Codan designs and manufactures a range of electronic products and associated software for governments, businesses, aid & humanitarians, and customer markets. CDA's three main products are Radio Communication Products, Metal Detection Products, and Tracking Solutions. Codan was founded in 1959 and listed on the Australian Securities Exchange (ASX) in 2003.

Catalysts: After experiencing strong headwinds and challenges during the financial year 2014, Codan has restructured the business and significantly strengthened its sales capability and balance sheet. An improved commercial focus and lower cost base delivered double-digit revenue and earnings growth for the past four years. The Company has been debt-free since 2017 and appears on track to deliver record results in the financial year 2019. Codan has a track record of delivering progressive dividend payments to shareholders.

Hurdles: As metal detection sales account for approximately 65% of the Company's total revenues, Codan is vulnerable to softening demand for gold detectors. Targeting various markets in Africa, Codan is exposed to geopolitical risks and may be subject to political instability which could adversely impact its profitability. Due to the non-recurring revenue sales structure of the business, Codan's sensitivity to global trade is somewhat elevated.

Investment View: Codan offers profitable exposure to demand electronic equipment in the metal detection and tracking market. We are attracted to the Company's progress since a disastrous 2014, significantly improved balance sheet, and track record of delivering dividend growth over time. Primary hurdles include geopolitical risks and sensitivity to softening demand in certain key markets in Africa. Targeting a payout ratio of approximately 50%, Codan appears well-positioned to distribute an attractive income component to shareholders for the financial year 2019 and beyond. We recognise the principal risks of the business as well as the chance for a medium-term share price correction, however, believe that the long-term outlook is favourable. We initiate coverage with a buy recommendation.


General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

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S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

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