Has Johns Lyng Group been seriously oversold following CEO’s 7.5% selldown?

By Market Index
Mon 10 Oct 22, 4:14pm (AEST)
Man holding dog in flood
Source: iStock

Key Points

  • Johns Lyng Group tumbles -14% following 7.5% share selldown by CEO
  • Management reiterates FY23 sales revenue guidance of $1,030.9m, up 15% year-on-year, and FY23 earnings of $105.3m, up 26%
  • Ord Minnett recently upgraded the group to Buy from accumulate with the target price of $8.50 offering 46.3% upside the current price

Having been on a rollercoaster of a ride since the start of the year, shareholders in Johns Lyng Group (ASX: JLG) witnessed another abrupt and deep dip today with the share price down around -14% heading into the close following revelations today that CEO Scott Didier had sold 4m shares.

While Didier retains around 19% of the company, it’s understood today’s share sale was undertaken to fund his relocation and living expenses including the acquisition of a family home in Denver, Colorado, along with certain tax liabilities.

In an attempt to appease the market today, following the 7.5% selldown of Didier’s holdings in the company, management reconfirmed its previous earnings guidance.

What happened the full year?

Despite recently posting a full year FY22 net profit after tax (NPAT) of $38.5m, up 40.1% on revenue of $895m - a 57.5% improvement on the previous period - the property services group’s share price ended the day around -6% lower.

Earnings (EBITDA) were up 58.9% to $83.6m, while earnings per share (EPS) were also up 24.5% to 10.34 cents.

What should have given shareholders added reason to smile at the FY22 result was:

  • Management’s decision to declare a 3-cent final dividend, bringing fully-franked full-year dividends to 5.7 cents – up 14% on last year.

  • Management guided to FY23 sales revenue of $1,030.9m, up 15% year-on-year, and FY23 earnings (EBITDA) of $105.3m, up 26%.

Solid pipeline

Much of the group’s strong full year FY22 result can be attributed to heightened catastrophe (CAT) events, notably Victorian storms and February 2022 flooding in NSW and QLD.

In short, these events have underpinned strong performance in the core Insurance Building and Restoration Services (IB&RS) division, which delivered revenue of $586.5m, up 63.8% on the previous year.

At the full year, Didier reminded investors that the IB&RS division is looking at a “solid pipeline of work” heading into FY23.

Didier also notes the company has additional acquisitions on radar and strategic growth opportunities across all its segments.

Following the acquisitions of several businesses in FY22, including Unitech and a controlling interest in restoration services company Steamatic Australia, the company also plans to progress its Strata Services growth strategy in FY23.

What brokers think

Despite Cat events having underpinned the group’s strong FY22 result, the share price has struggled, and is down around -10% over 12 months.

Consensus on the group is Strong Buy.

Based on Morningstar’s fair value of $9.52 the stock appears to be significantly undervalued.

Despite industry tailwinds, Ord Minnett believes the company is well placed to deliver strong revenue and earnings growth, especially given there is low capital intensity and [low] exposure to inflation.

The broker has upgraded the stock to Buy from accumulate with the target price of $8.50 offering 46.3% upside the current price.

The broker is forecasting a full year FY23 dividend of 8.00 cents and EPS of 19.00 cents.

Johns Lyng Group share price over 12 months.


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