The Judo Capital Holdings Ltd (ASX: JDO) share price is up more than 10% after reporting its FY24 result.
Judo is an ASX financial share, which specialises in providing loans to smaller businesses.
FY24 result
Here are some of the highlights from the 12 months to June 2024:
- Gross loans and advances (GLA) increases 20% to $10.7 billion
- The number of relationship bankers grew by 17% to 144
- Deposits jumped by 38% to $8.2 billion
- The net interest margin (NIM) fell 35 basis points (0.35%) to 2.94%
- Underlying cost-to-income ratio worsened by 50 basis points to 54.6%
- Underlying profit before tax (PBT) increased 2% to $110.1 million
- Statutory PBT dropped 3% to $103.4 million
The GLA growth was at top end of its previous guidance, reflecting “3x system lending growth with strong margins.”
The FY24 NIM of 2.94% – a measure of how much profit a lender is making compared to its costs – was above the previous guidance of 2.85% to 2.90%.
Judo said it was successful in refinancing the RBA’s term funding facility (TFF), which was provided to help financial institutions through the difficult COVID conditions. It continues to transition its long-term funding mix, with deposits now 64% of total funding. This was ahead of guidance of 60%.
Arrears and impaired loans, as a percentage of GLA, have flattened to 2.31% at June 2024, from 2.63% at March 2024. This is below Judo’s through-the-cycle assumption of 3.30%.
Outlook for the Judo share price
Let’s look at the guided numbers for FY25 first.
The company re-confirmed its FY25 target of 15% growth in profit before tax compared to FY24.
Judo is now targeting 75% of its at-scale funding to be sourced from term deposits.
The business said it’s demonstrating the “significant operating leverage that is inherent in its business model and which will deliver significant profit growth in 2H25 and beyond.”
Judo also said with “a larger balance sheet, diverse funding and robust capital levels, the bank moves into FY25 well positioned to unlock growth opportunities, such as continued regional expansion, and consideration of new product segments and adjacent SME lending products.”
It’s targeting a return on equity (ROE) in the low to mid-teens once it’s at-scale.
Judo said that while many businesses are able to maintain margins and preserve balance sheets, some are “experiencing stress with high inflation and interest rates impacting certain sectors, particularly those reliant on consumer discretionary spending.”
The business said it’s targeting profit before tax growth of 15% in FY25 compared to FY24. The cost to income ratio and cost of risk are expected to be “broadly stable” compared to FY24.
NIM is expected to steadily increase during FY25. The 2025 financial year is expected to see a NIM of between 2.8% to 2.9%. The June 2025 exit NIM is expected to be around 3%.
GLA is expected to grow to between $12.7 billion to $13 billion. Lending is expected to accelerate, supported by the recruitment of an additional 20 bankers in 10 new locations by June 2025.
If the business keeps growing its loan book, then this can help boost underlying profit. I think the Judo share price could keep rising, it just depends on the level of arrears over the next couple of years.