Now could be a good time to buy Codan Ltd (ASX: CDA) shares.
That's the view of analysts at Goldman Sachs, which are feeling bullish on the ASX 200 share.
What did the broker say about this ASX 200 share?
Goldman Sachs has been running the rule over the metal detector and communications-focused manufacturer and supplier of electronic solutions.
The good news is that it likes what it sees and believes the ASX 200 share has significant growth potential. It said:
We consider Codan to be a high-quality electronics company with multiple levers available to grow both its Metal Detection and Communication segments with our Buy rating centered on: 1) Zetron benefiting from US$10-15bn in required USA government funding for NG911 with annual state expenditure accelerating; 2) Tactical Communications supported by a favourable military spending environment and general industry tailwinds; 3) Metal Detection benefiting from market share gains supported by expansion of distribution points and continued product development; and 4) Codan pursuing accretive bolt-on acquisitions, growing its product portfolio, customer base, and geographical reach in Communications.
Likely to outperform
According to the note, the broker believes that the ASX 200 share is well-placed to outperform consensus estimates in the coming years.
This is based on its belief that Codan's acquisitions and integrations will deliver more than expected. It explains:
Our FY25/26/27E Npat forecasts are +3-5% above VA consensus with differences explained largely due to acquisition and integration assumptions. We consider there to be further upside to our forecasts with incremental accretive acquisitions, and the integration and expansion of recently acquired businesses. Our price target is based on a blended (50/50) DCF (WACC 9.2%; TGR +3.75%; RfR +3.5%) and SOTP (18x time-weighted FY25/26E EV/Ebitda) valuation methodology with reference to relative peer sets in both Communications and Metal Detection
Time to buy
The note reveals that Goldman Sachs has initiated coverage on Codan with a buy rating and $18.00 price target.
Based on the current Codan share price of $15.94, this implies potential upside of 13% for investors over the next 12 months.
In addition, a modest dividend yield of 1.7% is expected in FY 2025, boosting the total potential return towards the 15% mark.
But there are risks for investors to consider before making an investment. It concludes:
Key risks include 1) Geopolitical uncertainty or civil unrest in Africa impacting distribution; 2) Acquisition and integration risk; 3) Competition and alternative product innovation; 4) Loss of key personnel and relationships.
