Update: Codan Ltd

Codan is a sub $500m Australian company, that I have written about in the past. It is a decent, if superficially rough business, with both net margins and ROE near 15%.

For FY 2016, its EPS was $0.12 (all numbers in AUD, unless otherwise stated). At 12-15x EPS, I had reckoned that CDA.AX shares were worth about $1.50. In July 2016, they were trading at $1.13.

Since then, shares have doubled and are trading at about $2.10. The narrative around the company’s core business has been improving steadily.

Debt has been paid off. This Feb 2017 presentation shows that FY2017 is off to a stellar first half. Here’s a picture:

Screenshot from 2017-04-28 22-05-50

The NPAT in 2016 was $21.1m. The NPAT for 1H 2017 was $22.2m. The latest guidance for FY2017 is $35m.

If Codan manages to hit that, the EPS for 2017 will $35m/177.2m ~ 19.7c. At 15x this (decent ROE, secular tailwinds, 3% dividend), the shares are probably worth $3 a piece. Thus, even after a near doubling, shares are probably undervalued by nearly 30%.

I continue to hold.



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