Codan Ltd (ASX: CDA) has experienced a wild ride on the stock market since the onset of the pandemic, with its share price bouncing dramatically over the past few years. After hitting an all-time high of nearly $20 in 2021, the company's shares plummeted by 80%, leaving many investors pondering whether better days were behind them. Fast forward to March 26, 2025, and Codan's share price has rebounded to $16.30, raising questions about its long-term resiliency and potential for new highs.
Founded in 1959, Codan is a leading Adelaide-based company specializing in metal detection and communications technology. Initially recognized for manufacturing high-frequency radio products for the Royal Flying Doctor Service, Codan has evolved over the decades, currently operating through two main segments: metal detectors and communications.
A significant turning point for the company came in 2006 when it acquired Minelab, which propelled its presence in the metal detection market. However, the pandemic brought with it record demand for metal detectors, particularly from Sudan's artisanal gold mining sector. This demand, however, was not sustainable. By 2022, the market had begun to contract sharply, significantly affecting Codan's share price.
In response to these market fluctuations, Codan diversified its business significantly, venturing into communications technology. The acquisitions of Domo Tactical Communications and Zetron in 2021 provided a foothold in creating critical communications solutions for various sectors including military, public safety, and law enforcement. Furthermore, in 2023, Codan acquired Wave Central, continuing to bolster its communications profile and signaling a clear shift towards more reliable revenue streams.
As of now, communications have become the dominant revenue source for Codan, overtaking its traditional metal detection segment. According to recent projections from Cognitive Market Research, the global metal detector market is expected to grow at a compound annual growth rate (CAGR) of 6.7% from 2024 to 2031. Yet, the metal detector industry is notoriously volatile, prone to sudden booms and busts that can destabilize stock prices, as evidenced by the sharp decline from 2021 to 2022.
Government spending has also become a vital factor in Codan's evolving business. In 2023, global government expenditure surged to $2,443 billion, reflecting a 6.8% increase from the previous year and the steepest rise since 2009. With heightened geopolitical tensions worldwide, governments are likely to sustain elevated spending levels, which could favorably impact Codan's communications segment.
For investors, the question remains whether Codan’s transformation can deliver sustained success. The company's current price-to-earnings (P/E) ratio stands at 36 times earnings, significantly above its five-year average of 22. This P/E ratio suggests that while the market is hopeful for Codan's future profitability, the high valuation positioned against the backdrop of a volatile industry presents a mixed bag of risks and opportunities.
In light of the ongoing expansion within its communications sector, Codan's profile is changing. Its diversified approach reduces its historical dependency on metal detectors and grants access to substantial new market opportunities. Investor sentiment may lean toward optimism as the company navigates these potential shifts, but it's essential to balance this optimism with caution due to the fluctuating nature of market demand for metal detection technologies.
As Codan endeavors to solidify its position across both the metal detection and communications landscapes, the pivotal question now centers on the sustainability of their pricing strategy and whether a higher market multiple can be justified in light of these expanding operations. Only time will reveal if Codan can maintain this upward trend or if unforeseen market realities will once again send their shares spiraling.
In essence, Codan Ltd stands as a compelling case study of transformation and volatility in today’s market landscape. The interplay between historical performance and future potential will be critical as investors continue to scrutinize the company’s strategic choices in an evolving economic climate.
