The Codan Limited (ASX: CDA) share price has continued its steady climb since the pandemic. Can the Codan share price continue on the same trajectory?
Codan Limited is a manufacturer and supplier of communications, metal detection, and mining technology.
CDA share price
Codan sells subsidiary
The company has decided to sell 100% of its shares in its wholly-owned subsidiary, Minetec Pty Ltd to Caterpillar Holdings Australia Pty. Ltd for around $US 14 million.
This includes working capital and a volume-based earn-out over the next five years.
Codan expects this transaction to be completed by July 2021.
Minetec’s technology enables real-time monitoring and control of mining operations. The main purpose of the technology is to optimise productivity and improve safety.
In February 2018, Minetec entered into a marketing and development agreement with Caterpillar so the technology could be integrated into one of Caterpillar’s key products.
However, Codan notes it has been unable to scale the technology to a level that supports the ongoing investment required.
Caterpillar appears to be a better fit given its ability to capitalise on its extensive global dealer network.
What now for Codan?
Some might think this is a failure but I think it’s a sign of future success.
Would you rather invest in a business that has decided to rest on its laurels like Kodak or Blockbuster or a business that’s looking to constantly innovate like Amazon (NASDAQ: AMZN) and Tesla (NASDAQ: TSLA)?
Codan may not have been able to scale the technology but it managed to develop a product of value, which is why Caterpillar purchased it.
The company is also free cash flow positive, meaning it still has plenty of capital to deploy on other innovative projects.
As part of the Rask Investment Philosophy, I like businesses that constantly strive to widen their competitive advantage.
If these types of businesses get you excited, you may want to check out the Rask Rockets Beyond program.
