Codan Ltd. – Value Analysis (ASX:CDA) : July 4, 2017

Capitalcube gives Codan Ltd. a score of 72.

Our analysis is based on comparing Codan Ltd. with the following peers – RCR Tomlinson Ltd, Matrix Composites & Engineering Ltd, Redflex Holdings Limited and XRF Scientific Limited (RCR-AU, MCE-AU, RDF-AU and XRF-AU).

Investment Outlook

Codan Ltd. has a fundamental score of 72 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative outperformance over the last year and the last month suggest a leading position.
  • It currently trades at a Price/Book ratio of (2.73).
  • We classify CDA-AU as Harvesting because of the market’s relatively low growth expectations despite its relatively high returns.
  • CDA-AU has relatively high profit margins while operating with median asset turns.
  • The company’s year-on-year change in revenues and earnings are better than the median among its peer group.
  • CDA-AU‘s return on assets currently and over the past five years suggest that its relatively high operating returns are sustainable.
  • The company’s relatively high gross and pre-tax margins suggest a differentiated product portfolio and tight control on operating costs relative to peers.
  • CDA-AU‘s revenues have grown more slowly than the peer median over the last few years, which combined with the stock price’s relatively low P/E ratio suggests substandard growth expectations relative to peers.
  • The company’s capital investment seems appropriate for a business with peer median returns.
  • CDA-AU has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

CDA-AU has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 2.58% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 5.53%), and a well-cushioned interest coverage level of 35.45x, CDA-AU can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • Of the 4 chosen peers for the company, only 3 of the stocks have an outstanding debt balance. Companies with no debt include RDF-AU.

CDA-AU has maintained its Quick & Able profile from the prior year-end.

  • CDA-AU‘s interest coverage is upward trending and is now over one standard deviation above its four-year average interest coverage of 15.11x.
  • While its interest coverage increased to 35.45x from 6.62x (in 2015), its peer median decreased during this period to 2.71x from 6.94x.
  • Interest coverage rose 33.06 points relative to peers (and is now higher than its peer median).
  • CDA-AU‘s debt-EV is its lowest over the last four years and compares to a high of 33.55% in 2014.
  • The decrease in its debt-EV to 2.58% from 17.81% (in 2015) was also accompanied by a decrease in its peer median during this period to 5.53% from 22.00%.
  • Relative to peers, debt-EV rose 1.24 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
RCR Tomlinson Ltd 21.14 1.14 2.71 -6.62
Matrix Composites & Engineering Ltd 14.88 3.89 -65.43 88.38
Redflex Holdings Limited 0 1.29 -8.65 249.68
XRF Scientific Limited 5.53 5.64 57.73 468.23
Codan Limited 2.58 1.54 35.45 116.18
Peer Median 5.53 1.54 2.71 116.18
Best In Class 2.58 5.64 57.73 468.23

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Company Profile

Codan Ltd. engages in the development of electronics solutions for government, corporate, NGO, and consumer markets. It operates through the following segments: Communications Equipment, Metal Detection, Tracking Solution, and Other. The Communications Equipment segment includes the design, development, manufacture, and marketing of communications equipment. The Metal Detection segment includes the design, development, manufacture, and marketing of metal detection equipment. The Tracking Solutions segment includes the design, manufacture, maintenance, and support of electronic products and associated software for the mining sector. The Other segment includes the manufacture and marketing of printed circuit boards. The company was founded by Alastair Wood, Ian Baker Wall and Jim Irvine Bettison on July 1, 1959 and is headquartered in Mawson Lakes, Australia.

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