[VIDEO ANALYSIS] Is Codan (CDA) a sell or hold?

William O'Loughlin:

So, the next question comes-

 

Shannon Rivkin:

Final question.

 

William O'Loughlin:

The final question, that's right, comes from Greg from New South Wales. He asks, "I love the show and find it very informative in the way you deliver information and make it easy for beginners like me to understand."

 

Shannon Rivkin:

Thank you.

 

William O'Loughlin:

Thanks Greg. "I currently hold Codan CDA and have held it for over three years. I want to sell some shares in my portfolio to give me more money to follow your momentum strategy. The price has now risen to a point where I'm wondering whether I collect the dividends next week and take the profit or hold on longer. Do you see future growth in Codan?"

 

 

Codan sells radio communication, metal detection and mining technology equipment primarily to governments and similar agencies, and I actually had a very strong result on the prior half. Revenue was up massively. Profit was up massively. Prior to that they sort of had steady growth over the half, so this half was a bit of an anomaly. As a result the P/E is now only around 12 times, which is pretty low. They have no net debt and they've been growing their return on equity steadily each year since FY14. It certainly seems to be well run company. The forecast net profit after tax for FY17 is 35 million. That does indicate that the second half result won't be as strong as this first half. I think in the first half the net profit was around 22 million, so obviously subtracting those gives you a second half result of around 13, but it will still be showing a healthy profit.

 

 

My view is that there's probably no reason to get rid of the stock if you wanted to keep holding it. It does seem to be doing well and growing steadily from half to half. Having said that, our momentum strategy is doing exceptionally well since we've started it, so it is worth putting some money in that. I don't know if there are other shares you can sell or other money you can access to do that, but yeah that would be my view.

 

Shannon Rivkin:

I might just add a bit more of a portfolio comment and a response to one of the questions in there about the dividends. If you ever do want to sell something or are thinking about selling it, certainly one where the dividends are so low, don't give any consideration as to whether you sell it before or after the dividend because, you know, obviously on the day a stock goes ex-dividend it will lower by the amount of the dividend. There might be some frame credits on top that probably won't get reflected in the share price, but I think the next dividend is three or four cents, so you're certainly not talking about a lot of franking credits here anyway, so if you've got that decision to sell, just sell it.

 

 

Also, I should say, look I don't know how much you've got. That's the other thing to consider because you're talking about selling some of that to raise money through momentum strategy. It sounds like you might be overweight Codan. If that's the case, then whether it's our favourite on the entire ASX or not, I would encourage you to never be significantly overweight in any one position. If you are overweight, this may be a good source of funds for the momentum strategy.

 

William O'Loughlin:

Okay.

 

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