Codan share price jumps 10% amid guidance for ‘record’ FY22 profit

Codan shares are starting the week strongly…

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Key points

  • Codan's shares are storming higher after the company revealed that it expects a record full year profit in FY 2022
  • Codan is guiding to a profit of ~$100 million, up from $64 million in FY 2021
  • Strong performances from across the business have underpinned this result

The Codan Limited (ASX: CDA) share price has started the week strongly.

In morning trade, the metal detector focused technology company’s shares are up 10% to $7.41.

Why is the Codan share price rising?

The catalyst for the rise in the Codan share price on Monday has been the release of a trading update from the company.

According to the release, the company is expecting its record FY 2022 first half profit of $50 million to be matched in the second half of the financial year.

This would mean a record full year profit of ~$100 million for Codan, which represents a 56% increase on FY 2021’s profit of $64 million.

Though, this guidance does come with a warning. Management advised that the timing of project sales or unforeseen challenges in supply chains could still impact revenues and profitability as it approaches the end of the financial year.

What is driving Codan’s growth?

The release explains that this strong growth has been supported by its strategy to diversify revenues and profitability.

It highlights that the increased profitability of the Communications division has continued during the second half thanks to positive performances from the acquired DTC and Zetron businesses.

In addition, the company’s Minelab business is on course for its second-best year on record. But even better, management expects the business to form a new base from which it will grow in future years. This is being underpinned by continued penetration of new geographic markets and new product releases that will drive further market share increases.

Finally, Codan revealed that its inventory management has been successful. It explained that its “decision to invest in inventory rather than let customers down has proven to be the correct one.”

Notwithstanding its investment in inventory, this has led to $41 million of cash being generated from operating activities so far in the second half. This is a huge improvement on its operating cash outflow of $13 million during the first half.

Motley Fool contributor James Mickleboro 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 Scott Phillips.

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