According to market research firm Forecast International, global defense spending is expected to reach around 2.6 trillion USD in 2026 and continue rising through to the end of the decade. Broader defense market estimates suggest roughly 5%–6% CAGR through 2032, driven by modernization and tensions like geopolitical conflicts.

Codan mainly sells tactical military-grade radios and metal detectors, heavily relying on government and institutional buyers. This demand isn’t reliable however, as orders may be delayed, uneven, or even canceled altogether. While revenue spikes look impressive, consistency, which the markets like, still feels weak.

Codan’s metal detection segment looks steadier in H1 26, although even that depends heavily on gold exploration cycles. Since most of its detectors are used to find gold, demand rises when gold prices are strong. When sentiment weakens, orders slow down quickly. It looks steadier than it really is.

Management has executed reasonably well so far, especially with acquisitions like Domo Tactical Communications, a wireless tech provider.

Overall, Codan sits in attractive niches, but that alone isn’t enough. It remains to be seen whether it can convert strong demand cycles into consistent margins and steady cash flow, not just periodic growth bursts.

Strong yet fragile

Codan’s H1 26 revenue came in at AUD 393.5m, up 29% y/y from AUD 305.6m, driven by both communications and metal detection segments, with some help from acquisitions such as Kägwerks, a tactical wearable tech specialist.

Net profit rose to AUD 71.2m, up 55% y/y from AUD 46.1m, while EBIT jumped to AUD 99.8m, up 52% y/y from H1 25's AUD 65.7m, supported by larger scale output benefits and a weak comparison basis, not just real improvement.

Its balance sheet looks slightly better - although not perfect. Cash and cash equivalent dropped to AUD 21.8m from AUD 27.9m in H1 25, mainly due to higher working capital and growth investments, though debt improved from AUD 199m to AUD 151m in H1 26, reflecting some balance sheet strengthening alongside expansion

There are positives on visibility. The communications orderbook sits at AUD 294m, up 19% y/y, which supports near-term demand. But government contracts are still uneven and timing-dependent, so conversions can be slow.

Overall, Codan delivered strong headline growth. But a lot still depends on gold demand and defense spending trends.

Peak pricing?

Codan shares have soared about 134% over the past year, which looks strong on the surface, but also raises the question: how much of that growth is already priced in. At AUD 40.47, it’s just below the AUD 44.52 high, so there’s little margin for error.

In addition, its valuation looks stretched: its FY 26e forward P/E of 42.7x is well above its 3-year average of 27.9x. That’s a big premium, especially for earnings that may remain this strong every year.

5 out of the 8 analysts who monitor the stock have “Buy” ratings, while the other 3 are on “Hold”, with an average target price of AUD 42.6. This only represents about 7% upside potential. The market seems optimistic, although not blindly so. It’s pricing in strong growth but is also quietly acknowledging that most of the easy gains may already be behind us.

Betting the border

Growth looks strong, especially in metal detection, but it is heavily reliant on gold demand. The Communications segment is steadier, although this still depends on government orders, which are slow and unpredictable, making revenue timing uneven. There’s also an execution risk - integrating acquisitions and scaling operations isn’t always smooth. Currency swings and supply chain issues could also hit margins.

Therefore, although things look good now, a lot depends on favorable conditions continuing.