Codan Ltd (ASX: CDA) shares have been on a record-breaking run this month.
Investors have been fighting to get hold of the metal detector company's shares following the release of an impressive full year result.
But have its shares now peaked? Let's see what the team at Macquarie Group Ltd (ASX: MQG) is saying about the ASX 200 share.
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What is Macquarie saying about this high-flying ASX 200 share?
Macquarie notes that Codan delivered a result which was a "strong beat" on both the top and bottom lines.
In light of this, it doesn't appear surprised that its shares have rallied strongly since the release.
Commenting on the result, the broker said:
Strong beat top and bottom. Revenue of $674m was a +5% beat to VA consensus and up 23% yoy, reflecting strong organic growth, supplemented by Kagwerks acquisition. NPAT $103.5m grew +27% yoy and beat cons. by +4%. Result includes $5m of acquisition-related expenses, and unallocated costs grew to $62m from $45m in FY24.
It also highlights that the company's exposure to the defence industry has been growing quickly and now accounts for over a third of its Communications revenue. Macquarie adds:
Defence revenue now represents 38% of Communications revenue, with DTC unmanned systems revenue more than doubling in FY25 to >$100m. Orderbook grew +28% yoy to $253m, providing momentum into FY26.
Codan shares downgraded
According to the note, Macquarie thinks that the ASX 200 share is fully valued now trading on a 24x forward EV/EBIT multiple.
As a result, despite being a fan of the company, it has downgraded its shares to a neutral rating with a vastly improved price target of $27.15 (from $17.00).
Based on its current share price of $29.60, this implies potential downside of 8% for investors over the next 12 months.
Commenting on its downgrade, Macquarie said:
A standout result and hard to fault. Detection delivered a significant beat with strong tailwinds, while Comms continues to build confidence it will deliver 10-15% growth med-term, however post rally CDA is trading at 24x FY26e EV/EBIT and reached our DCF val, we downgrade to Neutral.
Earnings changes: FY26/27/28e EPS +14%/+12%/+10% driven by the strong FY25 result and outlook. See page 4 for detailed earnings revisions. Valuation: TP +60% to $27.15 ($17.00 prior) driven by earnings revisions >10% with material but smaller upgrades into outer years (drives +36%), and change in DCF inputs with WACC 8.5% from 9.2%. See page 5 for DCF detail.
