CODAN LIMITED (CDA) Share price weakness a buying opportunity
OUR VIEW - UPGRADE TO OUTPERFORM
Since downgrading to a Hold recommendation at the FY21 result, CDA’s share price has fallen 17%. It has been oversold in our view. We believe that the announced retirement of Donald McGurk (CEO) and a forecast slowdown in the rate of metal detection growth vs. prior periods are the largest drivers. We maintain a positive bias towards the globally scalable metal detection business where CDA holds an insurmountable near-term technology advantage over much smaller peers. This is absolutely reflected in CDA’s dominant market share across most price points in all major markets. We still believe that post GPX 6000, considerable portions of future metal detection R&D spend will be earnings protective, becoming more dependent on channel/geographical expansion to drive growth. Uncertainties created from an outgoing CEO probably limits a re-rate back to the mid 30x EPS. Our forecasts assume a positive October AGM trading update. This should restore some market confidence. CDA now trades at 21.4/19.3x our FY22/23e EPS. Entry at these levels has appeal in our view. We upgrade our recommendation to Outperform.
CDA Price at posting:
$12.55 Sentiment: Buy Disclosure: Held
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