Goldman Sachs just put a buy rating on this ASX 200 share

The broker has good things to say about this 'high-quality' company.

| More on:
A smiling woman holds a Facebook like sign above her head.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Now could be a good time to buy Codan Ltd (ASX: CDA) shares.

That's the view of analysts at Goldman Sachs, which are feeling bullish on the ASX 200 share.

What did the broker say about this ASX 200 share?

Goldman Sachs has been running the rule over the metal detector and communications-focused manufacturer and supplier of electronic solutions.

The good news is that it likes what it sees and believes the ASX 200 share has significant growth potential. It said:

We consider Codan to be a high-quality electronics company with multiple levers available to grow both its Metal Detection and Communication segments with our Buy rating centered on: 1) Zetron benefiting from US$10-15bn in required USA government funding for NG911 with annual state expenditure accelerating; 2) Tactical Communications supported by a favourable military spending environment and general industry tailwinds; 3) Metal Detection benefiting from market share gains supported by expansion of distribution points and continued product development; and 4) Codan pursuing accretive bolt-on acquisitions, growing its product portfolio, customer base, and geographical reach in Communications.

Likely to outperform

According to the note, the broker believes that the ASX 200 share is well-placed to outperform consensus estimates in the coming years.

This is based on its belief that Codan's acquisitions and integrations will deliver more than expected. It explains:

Our FY25/26/27E Npat forecasts are +3-5% above VA consensus with differences explained largely due to acquisition and integration assumptions. We consider there to be further upside to our forecasts with incremental accretive acquisitions, and the integration and expansion of recently acquired businesses. Our price target is based on a blended (50/50) DCF (WACC 9.2%; TGR +3.75%; RfR +3.5%) and SOTP (18x time-weighted FY25/26E EV/Ebitda) valuation methodology with reference to relative peer sets in both Communications and Metal Detection

Time to buy

The note reveals that Goldman Sachs has initiated coverage on Codan with a buy rating and $18.00 price target.

Based on the current Codan share price of $15.94, this implies potential upside of 13% for investors over the next 12 months.

In addition, a modest dividend yield of 1.7% is expected in FY 2025, boosting the total potential return towards the 15% mark.

But there are risks for investors to consider before making an investment. It concludes:

Key risks include 1) Geopolitical uncertainty or civil unrest in Africa impacting distribution; 2) Acquisition and integration risk; 3) Competition and alternative product innovation; 4) Loss of key personnel and relationships.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Broker Notes

Broker written in white with a man drawing a yellow underline.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Woman with a scared look has hands on her face.
Broker Notes

Bapcor shares fell more than 30% yesterday. Should investors buy in the dip?

Is this a value opportunity?

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Broker Notes

Broker raises price targets on 2 ASX 200 shares to buy

Ord Minnett has just upped its 12-month share price targets on 2 buy-rated ASX 200 stocks.

Read more »

Man drawing an upward line on a bar graph symbolising a rising share price.
Broker Notes

Morgans says these ASX can rise 30% to 50%

The broker has good things to say about these shares.

Read more »

Two businessmen look out at the city from the top of a tall building.
Broker Notes

2 ASX REITs to buy in July: expert

Is it time to consider ASX REITs?

Read more »

Delighted adult man, working on a company slogan, on his laptop.
Broker Notes

Broker tips 20% upside for these ASX utilities shares

Bell Potter sees upside in these two shares.

Read more »

A beautiful woman with brown hair and wearing bright red lipstick looks shocked as she holds her hand to her cheek in response to the crumbling Adore Beauty share price today
Broker Notes

3 ASX consumer sector shares to avoid in July: expert

If you're looking to buy ASX consumer shares in July, read on.

Read more »

A little girl with red hair runs excitedly with a rocket strapped to her back, trying to launch.
Broker Notes

106% upside? Expert says this ASX All Ords small cap mining stock could explode

Big upside potential.

Read more »