Codan – a golden opportunity
On 18 January, it was reported here that a 5.5 kg gold nugget (worth up to $300,000) was found in Ballarat with the help of a Minelab GPX-5000 metal detector. Minelab is a world class brand owned and managed by Codan Limited (ASX: CDA), a company that we hold in our investment funds.
The article provided some very positive endorsements of Codan’s products:
“Cordell Kent, owner and dealer of Ballarat Mining Exchange Gold Shop, commented that the nugget was found with a state of the art metal detector called a Minelab GPX-5000, marketed as the best in the world. “There has been many prospectors that have walked past the exact place where the nugget was found and have missed it with an ordinary detector and did not have the technology to find it…that’s why this guy found it. This detector he used is the best there is, it goes deeper and further into the ground, better than others.”
Codan has a number of businesses, including communications, metal detection and mining technology, but it has enjoyed particular success with its gold detectors, on the back of a twelve year run in the gold price, and a number of major nugget discoveries like the one described above.
The business faces some challenges, not the least of which is from counterfeit products produced in China. However, there is also potential upside from a new generation of detectors that will have the ability to look further down into the ground. This means that land already turned over may again become prospective.
The longer term outlook is difficult to forecast, but we feel there may be some upside to the company’s $40m profit guidance provided very early on in the financial year.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Peter Campbell
:
Trying to find out what is happening with Codan. As a result just revisited Russell Muldoon’s recommendation of January 2013 which is why I purchased the stock. Given the continued slide of the share price, I would like to hear what Russell’s view is of the near to longer term prospects of Codan and hence its share price.
Russell Muldoon
:
Hi Peter, we no longer actively follow Codan. We have not held the business in our portfolios for many years.
Peter Nevin
:
I am no expert, but I believe Codan is more than gold detectors.
I can see a time when their mining technology provides a steady income source. The ability to track employees and machinery underground is a major safety improvement. Also being able to send high speed data via wifi underground would save man hours. I think mining companies would see value in this sort of technology especially coming from a respected name like Codan.
On top off this they are respected by armed forces and emergency services around the world for their communications products. All we need is miners and governments with money to spend.
Lloyd Evans
:
Good post Russell.
Investing in small companies requires an understanding of the qualitative aspects of businesses; Russell highlights CDA’s strong product recognition in a niche industry.
I currently own CDA and have for sometime and in addition to the quantitative aspects of the business (Strong cash flow, increasing EPS and high ROE) the qualitative aspects of the business are just as vital prior to making an investment decision.
As a small investor and without the ability to speak with management directly, I typically review industry publications and read the company announcements intently to gain a view on the qualitative aspects of a business.
In the Chairman’s recent address to shareholders there was a couple of points of interest, which provided me some insights into the qualitative aspect of the business.
The chairman referred to ‘your business performed well’. This language highlights to me that management are aligned and treat shareholders with respect. A bit tick in my book.
The commentary regarding the divestment of its satellite business also highlighted that the management team understand their abilities to add value for shareholders, with the satellite business not being one of them.
Although the above comments are not exactly conclusive, it does add weight to my overall qualitative assessment of the business and strengthens my purchasing decision.
I am eagerly awaiting the half year and full year results to see if the strong performance of the business during the first quarter continued and to obtain an update on the integration of the Daniel’s business.
To this end and based on prior ‘under promise and over deliver’ announcements I think there will be further upside on the full year results of $40m
Andrew Legget
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Everytime i hear about a big gold discovery i can’t help but think of people rushing out to state their claim or the Bre-x scandal.
Either way it doesn’t sound like it would be bad for Codan as they supply the instruments rather than mining. It sounds like the company has some good products behind them and worth a closer look. A new gold rush would mean new higher demand for prospecting instruments and if you are going to be serious about it then you want the best in the world that can find things no-one else can. Makes sense as to the attractiveness of codan.