Codan Limited (ASX: CDA) shares took an 11.8% hit yesterday, despite no news or announcements made by the company.
Still, Codan has been an extremely strong performer from the onset of COVID-19. This is thanks to a record high gold price and a surge in popularity for recreational metal detection.
Even after yesterday’s dip, Codan’s shares have returned 280% since the bottom of the market last year and a huge 1320% over the past five years.
CDA share price
Codan background
Codan is a technology company that specialises in metal detection, communications and mining technology.
Although based in South Australia, Codan is a global company with offices in Canada, the US, Ireland, the UAE and Brazil. Some of its customers include humanitarian organisations, security and military groups, mining companies and governments.
Just recently, Codan sold one of its subsidiaries, Minetec Pty Ltd to Caterpillar Holdings Pty. Ltd in a US$14 million deal.
Why Codan has struck gold recently
Codan revealed last year that it had experienced a surge in demand in both its metal detection and communications segments.
Due to the pandemic, it seemed that many people took up metal detecting as a hobby, partly due to being able to do it in isolation. Sales for the segment jumped by 68% in FY20, which saw group net profit after tax (NPAT) rise 18% to $64 million.
The increased demand for metal detectors was likely further spurred on by record-high gold prices seen last year. With gold’s perceived value significantly higher, this has clearly incentivised many to take up the hobby as they’re able to find and sell gold at a more attractive price.
Why Codan’s share price has sunk recently
It seems that short-term movements in Codan’s share price are somewhat correlated with the underlying gold price.
With the spot price of gold down around 6% over the past month, investors could be thinking that the demand for metal detectors could fall from these record levels.
It was also revealed last month that one of Codan’s directors, Donald McGurk had sold $2.4 million worth of shares at the market price of $18.33.
While Donald still does have a significant holding of the company, this has likely caused some short-term pain for Codan’s share price.
Summary
Codan is a high-quality business that seems worthy of trading at all-time highs. Despite being at these levels, Codan might still have some additional upside due to its competitive position and compelling product offering.
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