Codan and two other ASX stocks are below estimated value

The Australian share market has shown modest activity recently, remaining flat last week but gaining 6.2% over the past year, with earnings expected to grow 14% annually. In this context, identifying stocks trading below their estimated value could present attractive opportunities for investors looking for potential growth in an ever-growing market.

The 10 most undervalued stocks in Australia based on cash flows

Click here to see the full list of 49 stocks from our Undervalued ASX Stocks Based on Cash Flows screener.

Let’s take a closer look at some of our favorites from the reviewed companies

Overview: Codan Limited specialises in developing technology solutions for a broad range of clients, including United Nations organisations, mining companies and security forces, and has a market capitalisation of approximately A$2.07 billion.

Operations: The company generates its revenue primarily from the communications and metal detection sectors, generating A$291.50 million and A$212.20 million respectively.

Estimated discount to fair value: 24.5%

Codan, currently trading at AUD$11.42, appears to be undervalued by over 20% compared to its estimated fair value of AUD$15.13 based on discounted cash flows. The company’s return on equity is expected to be a solid 21.5% over three years, beating the Australian market forecast of 5.4%. With forecast earnings growth of 16.2% annually, Codan’s growth curve exceeds the average market forecast of 13.7%, highlighting its potential, although not significantly above the 20% growth threshold.

Overview: Mader Group Limited is a contracting company providing specialised engineering services to the mining, energy and industrial sectors both in Australia and internationally and has a market capitalisation of approximately A$1.30 billion.

Operations: The company generates revenue of AUD 702.87 million primarily from staffing and outsourcing services.

The story goes on

Estimated discount to fair value: 48.4%

Mader Group is significantly undervalued at AUD 6.51. The DCF-based fair value estimate is AUD 12.62, which represents an undervaluation of 48.4%. Earnings growth is expected to be robust at 17.56% annually, outperforming the Australian market average of 13.7%. In addition, Mader’s revenue growth forecast of 15.3% annually exceeds the general market forecast of 5.4%. This underlines the company’s potential in a competitive environment, despite not achieving extremely high growth rates.

Overview: South32 Limited is a diversified metals and mining company with operations in several countries including Australia, India and the United States and a market capitalization of approximately A$16.52 billion.

Operations: South32’s revenues mainly come from Hillside Aluminium with A$1.72 billion, followed by Illawarra Metallurgical Coal with A$1.36 billion, Worsley Alumina with A$1.36 billion and other segments including Mozal Aluminium (A$801 million), Sierra Gorda (A$649 million), Australia Manganese (A$651 million), Cannington (A$588 million), Cerro Matoso (A$541 million), South Africa Manganese (A$321 million), Brazil Alumina (A$443 million) and Brazil Aluminium (BA) with A$210 million.

Estimated discount to fair value: 40%

South32 currently trades at A$3.66, 40% below its estimated fair value of A$6.1, suggesting a significant undervaluation on a discounted cash flow basis. South32 is expected to be profitable within three years, and its forecast revenue growth rate of 7.5% per annum is above the Australian market average of 5.4%. However, its forecast return on equity over three years is relatively low at 10.9%, somewhat dampening optimism about future financial performance.

Turning ideas into action

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This Simply Wall St article is of a general nature. We provide commentary based solely on historical data and analyst forecasts, using an unbiased methodology. Our articles are not intended as financial advice. They do not constitute a recommendation to buy or sell stocks, and do not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

Companies discussed in this article include ASX:CDA, ASX:MAD and ASX:S32.

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