It has been a huge year for Codan shares (ASX:CDA), yet the rally has hit a speed bump of late, with the share price pulling back 17.5% over the past 13 sessions. This has dragged the ASX 200’s top performer back below the A$60 level as we head towards the final couple of months of the year.
If a reminder was needed, Thursday’s session put it back in the centre of traders’ minds that volatility on the way up can equate to big moves on the way down when momentum shifts. Codan shares fell 8.08% to close at A$56.53, breaking below the psychologically significant A$60 level for the first time since the stock’s late-September breakout, into correction territory. Down 10% week-to-date, the stock is on track for a the third straight negative week.
Despite the size of the pullback, some perspective is needed, as Codan still carries YTD gains of 94.8%, which for long-term holders makes the pullback uncomfortable, but not catastrophic. For technical traders, however, the breach of A$60 support is a meaningful signal that level had served as a springboard for the stock’s most recent leg higher, and losing it raises questions about near-term momentum.
The Latest Update
The operational picture at Codan remains impressive, and at its AGM, the company upgraded its first-half FY27 guidance for the second time in quick succession, now projecting Group Net Profit After Tax of no less than A$162 million on revenue of A$410 million to A$420 million. Considering that Codan generated NPAT of just A$71.2 million on revenue of A$221.8 million in the prior corresponding period, the company is on track to more than double its bottom-line earnings in a single half-year.
The engine driving that growth is Codan’s Communications segment, which supplies radio-frequency equipment and unmanned systems technology to military and government customers around the world. EBIT margins in that division have expanded dramatically, reaching approximately 40% in the current half compared with 26% in H1 FY26. That kind of margin expansion, at scale, is what has made Codan such a compelling buy this year.
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A significant portion of that Communications surge is tied directly to active military conflicts. Management has indicated that conflict zones (including the ongoing wars in Ukraine and the Middle East) are expected to account for roughly 50% of H1 FY27 Communications revenue, up sharply from approximately 20% in the prior corresponding period. That concentration reflects the urgent and elevated demand for tactical communications equipment in active theatres of war, where Codan’s products have established a strong operational reputation.
News of discussions between Russia and the US towards an easing of the conflict in Ukraine have likely played their part in the pullback.
The company’s Minelab metal detection division, while less dramatic in its growth trajectory, is also providing a steady and diversifying revenue stream. Metal detection revenue for the current half is tracking slightly above H2 FY26 levels, supported by elevated global gold prices that are encouraging prospecting activity and driving demand for Minelab’s consumer and professional-grade detectors.
New product launches and geographic expansion into emerging markets are adding incremental volume, though the division faces ongoing headwinds from supply chain constraints and international trade compliance costs.
What Lay Ahead
The bull case for Codan rests on a combination of structural and cyclical tailwinds that appear strong. Global defense spending is rising across NATO and allied nations, and the adoption of unmanned systems and advanced tactical communications is accelerating as militaries modernise their capabilities. The non-conflict portion of its Communications business is also growing at ~20%, suggesting the underlying demand base extends well beyond the current crisis cycle.
From a technical standpoint, the pullback to current levels brings Codan back toward a zone that long-term chart watchers will recognise as meaningful support. The stock’s breakout above A$60 in late September was accompanied by strong volume and a significant earnings catalyst, and a retest of that level is not uncommon in the lifecycle of a breakout trade.
Bears continue to point to valuation and concentration risk. After a near-doubling in share price this year, Codan’s stock embeds a significant premium, and any disappointment in H2 guidance, particularly if conflict-zone orders moderate, could trigger a further pullback.
Codan’s shares remain one of the closest watched on the ASX after the run this year, and with Russia ‘agreeing’ to three-way talks surrounding Ukraine, there may be some who are looking to take profit off the top here before real progress is made. Plenty to watch heading towards the weekend, with CDA on course for their third consecutive red week.
Bull Case:
- H1 FY27 NPAT more than doubling to A$162M+ signals exceptional earnings momentum.
- Communications EBIT margins expanding sharply to ~40%, well above historical norms.
- Secular growth in global defense spending and drone adoption supports long-term demand.
- Pullback to A$56 offers a potential re-entry into the ASX 200’s top YTD performer.
- Non-conflict Communications business growing ~20%, demonstrating broad-based demand.
Bear Case:
- Order visibility in conflict zones limited to three months, creating significant H2 uncertainty.
- Conflict regions now represent ~50% of Communications revenue, concentrating geopolitical risk.
- Near-doubling in share price leaves little margin for any earnings execution misstep.
- Breach of key A$60 support level signals fading near-term technical momentum.
- Minelab faces supply chain constraints and rising compliance costs pressuring hardware margins.
