Market thinks little of Johns Lyng's earnings guidance upgrade: Is there value on offer here?
The market largely ignored a favourable update by Johns Lyng Group today
Mentioned
KEY POINTS
- Full year revenue is likely to come in 8% higher than its February forecast at $867m
- Upgrade represents ongoing demand for BaU services, plus heightened catastrophe activity during FY22
- Six out of seven analysts surveyed on CMC Markets rate Johns Lyng a Strong Buy
After a disastrous month, which saw the share price tumble -33% from $8.94 early May – after an earnings outlook fell short of investor expectations - Johns Lyng Group (ASX: JLG) attempted to regain some lost ground by today upgrading its earnings guidance.
However, revelations that full year revenue is likely to come in 8% higher than its February forecast at $867m - up 52.5% on the previous financial year – did little to reignite investor interest, with the insurance builder’s share price down -1.76% at noon today.
Forecast earnings has been upgraded by $4.3m to $83m, representing a 5.4% increase on earlier guidance of $78.7m provided in February 2022.
This represents earnings growth of 57.8% year-on-year from FY21.
Heightened CAT activity
There are no surprises that today’s upgrade represents ongoing demand for the group’s core Business as Usual (BaU) services, plus heightened catastrophe (CAT) activity during FY22, due to the impact of floods in northern NSW and south-east Qld.
CEO Scott Didier noted that CAT-related activity continues to boost returns to shareholders, due to an increasing frequency of major weather events.
“We are very busy assessing the impact of the recent extreme weather events on our business which is expected to be materially positive and multi-year in nature,” Didier said.
No inflation or supply chain issues
“Johns Lyng is in the fortunate position to have not been materially impacted by inflationary or supply chain issues," Didier also noted.
The company was recently selected as the managing contractor for a $142m government funded program to provide free structural assessments of eligible flood impacted properties.
Management plans to provide further guidance on FY23 when the group delivers its final FY22 results late August.
Investors should take particular note of any update on the CAT work in hand which while continuing to grow, remains unquantified.
Johhs Lyng Group: 12 month share price movement.
What brokers think
Despite a shocker selldown in May, during which investors may have been spooked when two directors [including Didier] sold down $12.5m worth of shares, the group’s share price is still up 32.95% for the 12 months.
The stock’s 5-year gains stand at over 362%, while 52-week high and low are $9.37 and $3.98, respectively.
Despite recent selldowns, Didier still owns around 53.3m shares, or 20.6% of those on issue, while COO Lindsay Barber holds around 12.8m, or 4.95%.
Consensus on Johns Lyng is Strong Buy.
Based on Morningstar’s fair value of $6.86 the stock appears to be undervalued.
Six out of seven analysts surveyed on CMC Markets rate Johns Lyng a strong buy.
The relative strength index (RSI) which shows the company at 22, suggests Johns Lyng shares have been heavily oversold.
Low debt, high returns on equity and good past performance make Johns Lyng a stock to keep on radar at current levels.
