Why Codan Limited shares have surged 38% in 15 days

It’s a miracle!

What a recovery!

Look at that yield!

While these words probably weren’t screamed from the rooftops when Codan Limited (ASX: CDA) released its half-year results last week, the share price reaction since indicates that shareholders think the company might be on the way to restoring some of its former glory.

What happened?

As my colleague wrote last week, Codan reported:

  • an 8% lift in net profit after tax (NPAT) to $6.1 million
  • a 24% improvement in revenues from its metal detection business compared to the prior corresponding period (pcp).
  • A 21% fall in revenue from its communications products, and
  • A slight reduction in mining technology revenue to $2.3 million.

Not that impressive?

Indeed, the results have led to some commentators expressing an audible ‘sigh’, however for me there is some excitement from the result. To start with, Codan’s greatest success, and the reason why the shares hit $4 back in 2013, was because of the company’s metal detection products.

Sadly things went pear-shaped from there, when Chinese counterfeiters found that Codan’s products could be replicated as easily as a hoverboard or Razer scooter and revenue fell off a cliff, taking all profits with it.

So the best news for long-suffering investors is that the company’s new metal detection products must be hitting the mark and analysts took an upbeat view to the prospects of the full year.

Of course the risk is that perhaps until the product reaches real popularity the Chinese won’t bother trying to copy it again.

What now?

Codan remains a risky proposition as it is intrinsically linked to both mining sentiment and also global war zones via sales of its radio communications products.

In some ways the company’s products complement each other perfectly, in times of stability people may purchase metal detectors to hunt down significant deposits, while during times of conflict they’ll need better communication products.

I remain hopeful that Codan has a huge second half, and while that isn’t my base-case scenario I remain a shareholder because Codan’s technology does appear to be among the best in the market.

The trouble with Codan is that it's exceptionally hard to predict its future. We're not sure if it'll grow or shrink so there are better options for new money and dollar for dollar, insiders are calling this one of the biggest new markets in the history of modern business... NOW is the time to get in on the hush-hush industry that could be poised for growth of over 4,463%+ by 2020... And the 1 ASX stock that stands to grow YOUR money right alongside it! Simply click here to learn its name.

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Motley Fool contributor Andrew Mudie owns shares of Codan Limited. You can find Andrew on Twitter @andrewmudie

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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