With Codan's recent solid financial report and it's recent stock...

With Codan's recent solid financial report and it's recent stock price the only logical thing to do is announce a share buyback.

I think a stock buy-back of 5-10% (9M -18M) is what's needed for this company and I say it needs to be done now.

Share buybacks are one of the best ways for a company to invest. A buyback should only happen if there aren't another things to invest in at favorable terms...I don't believe Codan can double there marketing or R&D and see a dramatic increase in sales. I believe they are spending what they need to in those areas. Historically, share buybacks are one of the best ways for a company to increase EPS, which in turn increase the stock price.

-The most important reason for me, is it tells the market that management and the board (who know the company better than anyone) that the company is extremely undervalued. This in most cases creates a floor for the stock. It's rather simple. Currently Codan is under $1. If in the next year the stock goes to $2 they have a 100% gain. Much better than keeping cash in the bank.

-As companies need to buy these shares on the open market they create liquidity. Something Codan needs. Right now a small investor selling a few thousand shares can knock the price down of the whole company by 1%.

-It's very cost effective, especially when interest rates are low. They can fund the repurchase a few ways. A blend of all 3 seems the logical way or just #3.
1. From cashflow.
2. From cash in the bank. I doubt they are making more than 3-4% on that cash. It's highly likely Codan shares will increase more than 4% in the coming years. Codan current has 9M in the bank and more cash can be raised if needed later.
3. The most obvious and one I prefer is borrow it. Again, I'd assume Codan credit line interest rate is around 5%. They NOW have 50M to use where they see fit. Borrowing 18M (10% buyback) at a low interest rate and having the shares go up 50-100% is a effective use of shareholder resources. I actually can't think of a better one. Funny enough, they just paid that exact amount off.

-There are mutual funds (and investors) that look for financial sound companies that are buying back their own stock. This will basically put Codan shares on many radar's and create even more demand.

-It's just good investing if the shares are undervalued.

-They obviously lower the shares outstanding. Dividing the profit by a lower number increases EPS.

-Less money needs to be spent on paying dividends in the future.

Management have now said they can "grow the company over the next 2-3 years" . I read that as growth more than 5% so with share less than $1.40 (trailing PE of the last 3 months of 20.) Investing in their own company not only seems like a good idea...its really the only option. If management can find a better use for 18M than I'd happily listen to what it is.

My personal view...based on the recent report and the outlook by management is this stock should trade at a PE multiple of 25. If we can expect more solid growth like this in the next 6-12 months than I think a PE multiple range of 25-30 is warranted. The trailing 12 months EPS is 7.1 cents. A PE of 20 would value the stock at $1.42 . A PE of 25 would value the stock at $1.77. There are hundreds of stocks currently with PEs of 20 or more...some with poor results.

Currently, Codan is growing it's EPS and NPAT at 35+% I only assume that the next reports in 6 months and 12 months are much the same if not better.

The current PE of Codan stock is 13. This is a great buying opportunity. I ask management to take advantage of the world market sell off and buy Codan shares back now.