Codan (ASX:CDA) shares hit new all-time high

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Shares of Codan Limited (ASX: CDA) have hit a new all-time high today. The Codan share price closed at $11.57, up 8.13% for the day and just off of the new all-time high of $11.65 recorded earlier this afternoon.

It’s another winning notch on Codan shareholders’ belts today. The Codan share price is now up 60% for 2020 so far, and up 194% since 23 March. Over the past 5 years, Codan shares have delivered more than 1,000%.

What does Codan do?

Codan is a supplier and manufacturer of mining equipment, communications equipment and metal detection services. It’s been around since 1959, but hasn’t always been a winner for ASX investors. Between November 2003 and February 2016, Codan shares lost 50% of their value. That’s a long wait for a decent return. But anyone who held on would be thanking their lucky stars today, that’s for sure.

Investors have been buying Codan shares in earnest since the company announced earlier in the month it had won a US$10 million contract to supply tactical communications equipment to “a large African government” for its Codan Communications division. This contract includes the supply of Codan’s Sentry-HTM radios as well as other accessories.

Further, the company released its FY20 annual report this morning as well. Although Codan already announced its FY20 earnings back in August, the company did reiterate many of its stellar financial results, including 40% growth in net profits after tax, 29% sales growth and an annual dividend of 18.5 cents per share (up from 14 cents in FY19).

Interestingly, Codan has benefitted enormously from the soaring gold price in 2020. It notes that its Minelab division (which sells gold detection products) saw revenue growth of 30% for FY20

Why is the Codan share price hitting the roof?

Although it’s not clear, I estimate that today’s share price moves are the result of the optimistic guidance Codan included in today’s annual report. Back in August, the company gave no concrete guidance for FY21, which Codan reiterates today. However, the company did state the following:

Codan remains well-positioned for another successful year in FY21. Whilst it is too early for the board to give profit guidance, there are a number of factors that are relevant when considering the outlook for FY21:

  • strong start to the year and in line with FY20
  • demand for our metal detection products remains strong
  • Minelab will benefit from a full year of Vanquish sales and the release of a new gold detector
  • current travel restrictions will make it more difficult for Tactical Communications to conduct business development activities and close orders with new customers

It’s for these reasons, as well as existing general positive sentiment for the company, that I think explains Codan’s share price rise today. Hopefully, Codan can continue to keep its new-found growth streak alive

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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