Codan (ASX:CDA) share price sinks despite best profit in years

Codan is being punished by the market even with a record result at the bottom line.

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Key points

  • Codan reported its half-yearly results today and investors aren't happy
  • Even though it was the "highest half-year profit in the company’s history", the market appeared to be searching for more out of the company
  • The Codan share price has sunk more than 34% in the past 12 months 

The Codan Limited (ASX: CDA) share price is struggling today and is now 3.62% in the red at $8.53.

It's been a rollercoaster day for the ASX tech share, which jumped out of the blocks to $9.05, before slumping as low as $8.21 — a 7% fall on its previous closing price.

The share price movement comes after the release of the company's first-half result for the period ending 31 December 2021.

Codan share price sinks despite record profit

The metal detection-focused technology company highlighted several investment takeouts, including:

  • Highest half-year profit in the company's history
  • Communications orderbook of $163 million, $71 million expected to ship H2 FY22
  • Excellent results from Minelab given geo-political disruptions and a return to more normal levels of demand after COVID-19 impacted FY21
  • Secured higher inventory heading into the second quarter
  • Net profit after tax (NPAT) of $50.1 million, a 21% increase
  • Group sales of $257 million, a 32% increase against FY21 record first half
  • Interim dividend of 13.0 cents, fully franked, representing a 24% increase on the previous payment
  • Earnings per share (EPS) of 27.6 cents, up 21%

What else happened this half for Codan?

The company came into FY22 with "negative working capital due to prepayments from a number of large customers last year to secure supply".

As such, these factors led Codan to invest an additional $65 million in working capital in the first half. This decision was helped by "a near-record sales month in December 2021 and positioning DTC and Zetron for growth".

Codan says these figures will start to normalise over the next 6 months and that "positive cash flows will follow".

The company paid down around $10 million of its liabilities such that net debt dropped to $38 million in January 2022.

First-half metal detection sales over the last 3 years have been FY20 $100 million, FY21 $155 million, and FY22 $138 million.

This boiled down to efficiency and prioritising cost and improving margins, the company noted.

"Despite the reduction in sales this year, the business delivered a near-record first-half profit result with a clear focus on improving margins and on cost efficiency," the company said.

"As the market leader in the sector we were able to pass on price increases as required and the management of our supply chain meant that we reduced freight costs against global trend.

"For these reasons, we were pleased with the performance of the business."

Management commentary

The result has done little for the Codan share price. However, recently appointed chief executive Alf Ianniello was upbeat about the company's future. He said:

I am excited to join an exceptional business with strong culture and foundations. Our vision at Codan is to achieve consistent growth through the delivery of world class technology and innovation. We will do this by implementing the strategic growth plan and looking for opportunities to further strengthen the business via acquisitions.

What's next for Codan?

With respect to guidance, Codan notes "there are a number of factors that are relevant when considering the outlook for FY22".

These include "the successful uptake of GPX6000® gold detectors into the developing world; the resolution of the on-going civil unrest in Sudan; the extent to which DTC and Zetron will exceed their initial full-year profit targets".

"The Board is not in a position to provide full-year profit guidance at this point, however, we will continue to keep shareholders updated as the year progresses," Codan said.

Codan share price snapshot

The Codan share price has sunk more than 34% in the past 12 months. It has also fallen around 8% this year to date.

TradingView Chart

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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