Why has the Codan share price rocketed 20% in 2 months?

The Codan Limited (ASX: CDA) share price has been experiencing significant positive momentum over the past few months, with the stock price up 20% since June.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Codan Limited (ASX: CDA) share price has been experiencing significant positive momentum over the past few months, with the stock price up 20% since June. This rally in CDA shares has come off the back of two positive announcements by Codan, and puts the share price close to $4. This share price means that Codan shares have produced an average annual rate of return of more than 55% over the past 3 years.

a woman

What announcements did Codan make? 

In May, Codan announced that its profit for the second half of 2019 would be higher than originally anticipated. Management suggests full year profit will be in the range of $42–45 million, which is considerably higher than what the core business was expected to deliver. Strong metal detector sales and a strong performance by Codan's communication business have been the main contributing factors.

In this same announcement, Codan stated that its Minetec business unit would make a small operating loss in FY19. However, Codan also indicated that a trial of Minetec technology with Caterpillar's Minestar system was successfully completed in March. This a positive sign for this business unit's future.

In July, Codan announced the signing of a new communications contract with the Kenyan Government. This contract is said to be worth $15 million and will be delivered in the first half of 2020. This is will help ensure another strong performance for the Codan communications business next year.

Foolish takeaway 

Codan is a company with no debt and a management team that has demonstrated the ability to generate high returns on equity. Additionally, Codan's biggest business unit, metal detection, continues to hold market-leading technology and grow revenue consistently. These factors make me believe Codan has a bright future.

Despite a bright future, I will be choosing not to invest in Codan. This is because I believe that the recent share price rise has eroded much of the safety margin associated with CDA shares. In order to ensure capital preservation and maximum returns, I will be looking to invest elsewhere while keeping Codan on my watchlist for a future buying opportunity.

Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. 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 Scott Phillips.

More on Share Market News

Red line going down on an ASX market chart, symbolising a falling share price.
Opinions

Worried about an ASX share market correction? I'm following Warren Buffett's advice

The market is going through a volatility bump.

Read more »

Winning woman smiles and holds big cup while losing woman looks unhappy with small cup.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a rough end to a tough week.

Read more »

Graphic showing yellow arrow above vertical columns indicating a rising share price
Share Market News

$10,000 invested in this ASX ETF a month ago is now worth $14,500

Investors in this ASX ETF are sitting on very appealing short-term gains.

Read more »

Businessman looks with one eye through magnifying glass.
Share Market News

Pulse check: How are the top 10 ASX 200 shares performing amid a new war?

What's happening with CBA, BHP, Wesfarmers, Woodside, Telstra, and other large-cap shares?

Read more »

Happy man working on his laptop.
Broker Notes

Brokers name 3 ASX shares to buy right now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Broker Notes

3 buy-rated ASX shares in today's falling market

The market is now 4% down in 2026, but amid the volatility, experts say there are good buys available.

Read more »

three young children weariing business suits, helmets and old fashioned aviator goggles wear aeroplane wings on their backs and jump with one arm outstretched into the air in an arid, sandy landscape.
Share Gainers

3 ASX 200 stocks screaming higher in this week's sinking market

Investors sent these three ASX 200 stocks surging this week despite the broader market retrace. But why?

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

Why EOS, Latitude, Northern Star, and Rio Tinto shares are falling today

These shares are ending the week in the red. But why?

Read more »