Update: Codan Ltd

I’ve owned Codan Ltd since 2014, and have written about it here and here. The last time I looked at it, it was trading at ~$2.20. I thought it would earn ~20c in 2017, put a $3 AUD target on it. Currently shares trade at ~$3.25.

Over the past three years, the performance of the company has improved steadily. Here are some numbers for FY 2016, 2017, and 2018:

Revenue: $170m, $226m, $230m

NPAT: $70m, $45m, $40m

EPS: 12c, 25c, 22c.

2017 was a blockbuster year, which as 2018 results confirm, may be a preview of things to come. If you apply a 15x multiple as I have done previously, (15*0.22) you get $3.30. This indicates that shares are probably trading at fair value. A small wrinkle is that the net cash position has improved from -$4.4m to +$28m, which when divided by the number of shares out (178m) gives a value of $3.30 + 28/178 ~ $3.45 AUD.

I own shares of CODAF, which trade (infrequently) in USD. The target price in USD is 0.72*3.45 = $2.48. 

My original cost basis was $0.72 in 06/2014. I never added to my small original position (5000 shares). The last CODAF trade was at $2.31 – a 3x return in 4 years, implying a +30% CAGR. In addition, the company has returned nearly 40% of my original cost basis ($1360+, through FY 2018) in dividends.

I continue to hold the stock, in part thanks to its illiquidity. Gold prices have been mostly flat through my holding period, while AUD has weakened ~20% from 0.92/USD to 0.72/USD. Perhaps a good time to sell Codan would be when gold prices spike or AUD strengthens (or both!)? I don’t know – but as long as the business continues to execute, despite macro headwinds, I see no reason to bail.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s