Ann: Trading Update and Cash Position, page-22

$8.53 appears out of date, see Petra

· James Lennon’s research note looks at the end market opportunity for CDA’s core Minelab business, which in 2019 accounted for 67% of Group sales (39% gold detectors) and 81% of EBITDA (pre-unallocated costs), in the context of growth opportunity in artisanal small scale gold mining, which in many rural regions of the developing world, is the most important source of non-farm income

· James notes a number of sources estimate the global ASM population to be 10-15m miners across >70 countries, that collectively account for ~12-15% of global gold supply, and the largest source of mercury pollution, and while prospecting for gold using a detector represents a very small subset of the ASM market, it is high growth, reflecting superior (i) gold productivity in small mining teams, and (ii) health, safety, and ecological footprint

· Minelab (Metal Detection) has been CDA’s key growth engine since it acquired the business in FY08A, achieved via two CDA’s two strategic imperatives – investing in product range and performance, and increasing penetration of existing and new geographic markets – and in this context the ASG market would appear to offer a meaningful growth opportunity, particularly in Africa, where gold detector use is underpenetrated, and in the context of a strong gold price and as a complement to agriculture.

· CDA offers investors exposure to a diverse mix of businesses that leverage the company’s core competency in electronics engineering and global supply chain management.

· These qualitative factors are evident in CDA’s 5-year revenue and net profit CAGR to FY19 of 15.4% and 37.8%, which in combination with a high ROE and cash conversion, underpin CDA’s ~$83m net cash position.

Our view We are confident that Minelab has sufficient runway for growth over the next several years, underpinned by a strong gold price and new product innovations, the combination of which or example will drive increasing penetration of the global artisanal small-scale gold mining (ASM) market, particularly in Africa, and to a lesser extent Latin America. Given this outlook, the valuation discount versus peers appears unjustified, we reiterate our Buy rating and $9.33ps target price..