Codan profit rose 69%. The biggest risk? World peace

Codan (ASX: CDA) has produced another strong result, with revenue climbing 30% and net profit surging 69% in FY26.

The communications and metal detection company benefited from strength across both of its major divisions. Communications revenue rose 22%, driven largely by growing defence demand for unmanned systems, while Minelab revenue jumped 42% following four new product launches and strong gold detector demand.

That growth also translated into considerable operating leverage. Group EBIT increased 67% to $244.1 million, while the EBIT margin expanded from 21.7% to 27.9%.

Importantly, the result also leaves Codan entering FY27 with considerable momentum. Its Communications orderbook reached $380 million at 30 June, up 50% from a year earlier, while management is currently targeting around 20% Communications revenue growth in FY27.

Michael Carmody from Centennial Asset Management says the firm has owned Codan for some time and remains bullish following the result, maintaining a BUY rating.

“We have a high degree of confidence in the earnings growth outlook for the business.”

I spoke to Michael about what stood out in the result, the opportunities ahead for Codan and the risks that could derail the growth story.

Codan FY26 results

• Revenue up 30% to $875.0 million
• EBIT up 67% to $244.1 million, ahead of April guidance of approximately $235 million
• NPAT up 69% to $175.2 million, ahead of guidance of approximately $170 million
• EPS up 69% to 96.5 cents
• Communications revenue up 22% to $506.2 million, with segment profit up 45% to $156.0 million
• Communications orderbook up 50% to $380 million
• Metal Detection revenue up 42% to $362.0 million, with segment profit up 65% to $162.4 million
• Full-year dividend up 70% to 48.5 cents per share, fully franked
• Finished FY26 with $35.7 million of net cash, compared with $78.3 million of net debt a year earlier

Do you currently hold Codan and what is your rating?

We have owned the stock for some time and continue to expect it to outperform following the FY26 result.

We have a high degree of confidence in the earnings growth outlook for the business.

It’s a BUY for us.

What mattered most from the result?

Codan delivered a strong FY26 result, ahead of guidance and market expectations.

Revenue was up 30% and NPAT increased 69% compared with the previous year. Importantly, the result delivered not only strong revenue growth, but considerable margin leverage.

The company’s EBIT margin increased to 27.9% in FY26 from 21.7% in the previous year.

Key to the performance was the consistent growth delivered across Codan’s major divisions.

One of the highlights was the growth and profitability of the Communications division. Momentum continued as demand from defence customers grew during the year, while the Communications orderbook accelerated in the second half to finish FY26 at $380 million.

Codan has a well-established track record of new product innovation, and new launches made a meaningful contribution to the FY26 result.

That was particularly evident within Minelab, where the company released four products during the year, including its new flagship GPZ 8000 gold detector and the Gold Monster 2000.

Codan plans to expand its footprint among new customers and into new geographies during FY27.

Management did not provide specific group earnings guidance for FY27, but indicated investors would receive another update at the AGM in October.

Given the divisional revenue outlook provided with the result, we expect another strong year of earnings growth from Codan in FY27.

How do those outcomes affect the outlook?

Codan is well positioned to expand its global footprint through its three core brands, DTC, Zetron and Minelab, over the medium term.

Increasing global military and defence expenditure against a backdrop of heightened geopolitical tension is likely to underpin demand, particularly in the unmanned systems market.

Over the medium term, we forecast Codan's revenue to grow by around 12% to 14% per annum, with earnings growing by approximately 14% to 16%.

The benefits of scale are expected to deliver ongoing operating margin expansion and strong free cash flow.

The balance sheet also leaves Codan with considerable flexibility.

It finished FY26 with net cash of $35.7 million and has substantial undrawn debt capacity, giving the company scope to pursue strategic acquisitions as it has successfully done in the past.

We expect Codan to maintain a valuation premium to the broader market given its well-established track record of execution, earnings growth and shareholder returns.

What should investors be paying attention to as the story unfolds?

Product innovation and growing penetration within both existing and new markets should be the core drivers of Codan’s ongoing earnings growth.

The company is well positioned in the unmanned communications market, while new product applications should help meet growing demand from defence customers over the medium term.

Expansion into new geographic markets should also contribute to sustainable revenue and earnings growth.

There are risks, however.

With growing exposure to government demand, customer concentration could become a greater long-term risk for the business.

Governments have a habit of changing spending priorities and policy settings at relatively short notice, which could affect demand.

Competition and technological innovation also remain important risks. Codan’s position depends heavily on maintaining its technological leadership and continuing to develop products that meet changing customer requirements.

What could you be wrong about?

If world peace breaks out in the Middle East or Ukraine, the Codan share price would probably fall in the short term.

A prolonged gold bear market would also represent a risk given Minelab's exposure to gold prospecting.

That said, Codan has a long history of developing technology products that meet both civilian and military customer demand.

Competition and technological innovation remain the biggest threats to Codan’s market position and forecast growth profile.

Any disruption to its technological leadership, or a material slowdown in the consistent growth investors have come to expect from the company, could result in a lower share price.