Codan Limited (ASX: CDA) was a favourite of income-hungry investors from 2010 to 2013 when the company's gold detectors and radio communication equipment was taking the developing world by storm… then came an unforeseen problem.
Chinese counterfeiting, coupled with a severe fall in the gold price, conspired to see net profit fall from $45 million in the 2013 financial year to $9.2 million to 2014 financial year, as demand for Codan's gold detectors plunged from out-of-control to next-to-nothing.
What happened yesterday: Codan on Thursday released its financial results for the 6 months to 31 December, 2014. It reported a 12% lift in revenue, a 33% lift in underlying net profit to $6.01 million, and a 1.5 cent per share interim dividend.
So What: Codan's radio communications business took centre stage as segment sales improved by 55% to hit 53% of group revenue. The company's high frequency and land mobile radio products saw strong demand in the first half and continued success will see larger projects being awarded as a result of the superior functionality and quality of the equipment.
Codan's metal detection business, once the lifeblood of the company and driver of massive earnings growth, saw sales fall to $27 million, from $33 million in the previous period. The segment was affected by ongoing conflicts and disease in Africa and Chinese counterfeiting of last generation models. Codan last week announced the release of the self-proclaimed 'World's Most Advanced Gold Detector', the GPZ 7000.
The spiffy-named detector enables dramatic new finds in existing goldfields and is able to find gold up to 40 per cent deeper in mineralised ground. The product is apparently (hopefully) more counterfeit-proof than the previous iteration.
What now: Long-term shareholders of Codan are likely sitting on unrealised losses of up to 70%. This situation is less than ideal, but signs are moderately positive that the group will resume sustained growth. Investors are hoping, more than anything, that management can continue to build the radio communications business while taking advantage of any gold discovery hot-spots with its superior technology.
