Judo shares crash 46% on shock downgrade, now at its cheapest valuation ever
Three bad loans gutted Judo's earnings outlook and sank it 40%. But the growth darling is now its cheapest ever at 10.5x earnings.
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Mentioned
KEY POINTS
- FY26 profit before tax was cut to $163-169m, an 8% miss on consensus. FY27 guidance of $210-220m lands a steeper 16% below forecasts.
- The damage came from just three newly problematic loans across different sectors. The rest of the business is healthy, with net interest margin lifted above 3.2%.
- Despite crashing as much as 46%, Judo's new guidance still implies around 30% earnings growth, leaving it at its cheapest ever 10.5x trailing P/E.
Just two months ago, Judo (JDO) bolstered its provisions in anticipation of higher losses from fuel-sensitive sectors like agriculture, construction and manufacturing. And while the market didn’t think much of it then, this has now amounted to a major earnings downgrade for both FY26 and FY27, dragging the crowd favourite SME banker down as much as 46% on Thursday.
The CEO of Judo, Chris Baylis, said: “Recent credit outcomes have been driven by a small number of customers, who we are actively working with. These exposures have deteriorated subsequent to the customer-by-customer review undertaken in the third quarter and reflect recent, borrower-specific developments. While today’s update is partly a result of the macro environment, it is nevertheless disappointing.”
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Judo price chart (Source: Market Index)
Downgrade in a nutshell
Judo Capital flagged a higher cost of risk from three newly emerged problem exposures, dragging its profit outlook sharply lower despite progress elsewhere else.
FY26 profit before tax (PBT) has been guided to $163-169m, down from prior lower-end guidance of $180-190m and below consensus estimates of $180.7m – an 8% miss at the midpoint.
Cost of risk is now expected at $116-122m, driven by increases in specific provisions across three exposures in different sectors.
Loans that are 90-days-past-due (90DPD+) or impaired are expected to be around 3% of gross loans and advances (GLA) as at 30 June.
Second-half net interest margin has been lifted to over 3.2%, versus prior guidance of 3.15%.
CET1 ratio sits at 12.4%, and the second-half cost-to-income ratio is on track to come in below the first half's 48.5%.
FY27 PBT guided to $210–220m, well short of consensus estimates of $255.1m - a 16% miss at the midpoint.
Story this year
On 24 April, Judo released a trading update reaffirming FY26 profit guidance at the lower end of its $180–190 million range. The stock surprisingly finished the session up 1.4%, reversing a early dip of around (5%). Morgans' Nathan Lead said the "share price weakness presented a genuine buying opportunity," and 12 of the 13 analysts covering the stock had a Buy rating.
This makes today’s announcement a massive shock to the market. The company wanted to stress that the problems are specific to the three areas and not widespread. The rest of the business actually looks healthy with its lending margin now expected to be over 3.2%, which is better than they'd previously guided. Lending volumes are growing, deposit costs are favourable, and they're keeping operating costs under control.
What stands out more is that FY27 guidance has also been cut sharply. Analysts had been forecasting around $255.1 million, but Judo's $210–220 million range lands well below that, roughly a 16% miss at the midpoint.
Looking forward
This is what happens when a much-loved growth story hits the market with a left-field earnings downgrade, where FY26 will land ~8% below consensus and a material 16% miss for FY27.
The stock was sold into the abyss this morning, after opening 23.7% lower ($1.17) and down as much as 46% ($0.83) by 10:40 am AEST. Clearly, no one wanted a piece of the ‘growth’ story anymore.
This leaves Judo in a tricky spot, as the new FY26 and FY27 guidance implies year-on-year growth of 32.2% and 29.5% respectively, at the midpoint. That’s still some impressive growth, for a stock that’s now trading at the cheapest it's ever been – at a trailing price-to-earnings of just 10.5x at current prices.
While Judo was able to reaffirm its guidance for loan growth, net interest margins and costs, this was far outweighed by rising impairment provisions, deteriorating asset quality and tough macro conditions. Over the next day or two, we will likely see analysts aggressively cut their optimistic target price sand earnings forecasts.
