Codan Ltd (ASX: CDA) shareholders are already sitting on impressive gains over the past year, but the team at Macquarie has just upgraded its outlook for the company.
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Impressive share price performance
The value of Codan has edged over $7 billion this week, with the shares changing hands for $39.95 on Thursday, up 3.6% on the day. The stock has appreciated from lows of $16.56 over the past year.
But Macquarie still has a buy rating on the stock and a bullish share price target, which we'll get to later.
To understand why Macquarie is positive on the outlook for the company, it pays to understand what Codan does.
It has two main divisions: its Minelab division, which sells metal detectors and is strongly leveraged to the gold price; and the communications division, which specialises in making products for the global military sector.
Drone warfare a big tailwind
Macquarie said in its research note issued this week that the growth in drone use across militaries worldwide was a positive for Codan's DTC business, which makes the radios that go into drones.
As Macquarie said:
DTC's UxV radios are mainly used in unmanned aerial vehicles (UAVs), the largest and fastest-growing UxV segment. However, opportunities are expanding across other platforms, including ground (UGV) and marine (USV), broadening the addressable market over time. Recent conflicts in Ukraine and the Middle East have underscored that the future of warfare is increasingly reliant on UxV systems. Lessons from Ukraine are accelerating a global shift towards resilient, military-grade solutions. Additional tailwinds include the push for sovereign capability, ecosystem expansion and platform integration, and a rapidly evolving technology roadmap.
Macquarie said Codan's BluSDR product had been battle-tested in Ukraine and came with highly attractive features.
Macquarie said defence spending was also on the increase:
Defence budget allocation to UxV systems is growing across almost all defence forces. The US 2027 defence budget plans to triple spending on drones and related tech to ~US$74bn. The Australian Federal budget gave Defence an extra $53bn over the next 10 years, with up to $15 billion spend on UxV.
Codan itself recently issued a business update in which it said the communications division should achieve revenue growth at the upper end of guidance of 15% to 20%.
The company said re Minelab:
Minelab revenue in 2H FY26 to date is tracking ahead of the strong first-half performance. Based on current trading conditions which are being supported by a favourable gold price and recent successful product releases, the Group continues to expect second-half performance to exceed the first half.
Macquarie has upgraded its price target for Codan shares by 5% to $44.20.
