When thinking about valuation, one has to remember the overall...

When thinking about valuation, one has to remember the overall investment universe in which we operate and where Codan fits relatively.
The overall PE of the market is much higher than what it was 5-10 years ago. So does CDA deserve a discount/premium/in-line PE? Well to answer that we can look at the characteristics of the company.

- Consistently manages expectations with under-promise over deliver on earnings. 35%cagr last 5 years in earnings.
- Best in class products, protected by IP patents and reinforced by substantial R&D expenditure annually.

- Company has just made two acquisitions, paid record dividends - all without recourse to holders AND ended the year with no debt. That's some serious cash generation. Won't take long before another warchest is built up to which the company can either undertake capital management initiative or make another well considered acquisition to complement the current stable of businesses.

- The communications division has been a drag on earnings in recent times, but with the recent acquistions and what is going on in their target markets - I'd expect this division to start really shining in the following 5 years. We've already seen evidence of this with the recent $38m military mesh radio contract.

-Risk around new CEO, however Don is staying on for 9-12 months to ensure the handover is successful. I think caution is warranted to see who they appoint - but given the way this team operates, I'd expect a solid appointment. Further to this, the divisional leaders within Codan are all long tenured and well entrenched in continuing the growth within their respective units.

With a PE around 16-17x it is trading at a discount to the market PE - based on the above information I think the business deserves to trade as a premium to market. Current focus is around the worries of a new CEO and cycling a strong period boosted by stimulus, and is overlooking the quality of the underlying asset which appears to be improving in my eyes. It's not the most undervalued stock I've ever seen - but buying quality at a discount is very hard to do in recent times.