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Judo Capital Holdings Ltd (ASX:JDO) has seen its share price rise by over 10% following the release of its fiscal year 2024 (FY24) financial results. The financial services company, which specializes in providing loans to smaller businesses, reported impressive growth metrics for the year ending June 2024.
Key Highlights from FY24:
Judo Capital demonstrated significant expansion in its gross loans and advances (GLA), which surged by 20% to reach $10.7 billion. The company's workforce of relationship bankers also grew, increasing by 17% to 144. Deposits saw a notable increase of 38%, climbing to $8.2 billion. However, the net interest margin (NIM), which reflects the profitability of lending compared to costs, fell by 35 basis points to 2.94%. Despite this decline, the NIM was above the company's previous guidance of 2.85% to 2.90%.
The underlying cost-to-income ratio worsened slightly by 50 basis points to 54.6%. Despite these pressures, underlying profit before tax (PBT) increased by 2% to $110.1 million. Statutory PBT, however, dropped by 3% to $103.4 million. The growth in GLA was at the high end of previous guidance, reflecting strong margins and a threefold increase in system lending.
Judo Capital successfully refinanced the Reserve Bank of Australia’s term funding facility (TFF), which was initially provided during the COVID-19 pandemic. The company has continued to transition its funding mix, with deposits now making up 64% of total funding, surpassing the earlier guidance of 60%. Arrears and impaired loans, as a percentage of GLA, remained stable at 2.31% as of June 2024, improving from 2.63% in March 2024 and staying below Judo’s through-the-cycle assumption of 3.30%.
Outlook for FY25:
Looking ahead to FY25, Judo Capital has reaffirmed its target of achieving a 15% increase in profit before tax compared to FY24. The company aims for 75% of its at-scale funding to be sourced from term deposits. Judo Capital's strategic focus includes leveraging its operating model to deliver significant profit growth in the second half of FY25 and beyond.
With a larger balance sheet, diverse funding sources, and robust capital levels, Judo Capital is positioned to explore growth opportunities. These include regional expansion and the introduction of new product segments and adjacent SME lending products. The company targets a return on equity (ROE) in the low to mid-teens once it reaches scale.
Judo Capital anticipates a gradual increase in NIM during FY25, projecting a range of 2.8% to 2.9% for the year, with an expected exit NIM of around 3% by June 2025. The GLA is projected to grow to between $12.7 billion and $13 billion, supported by the recruitment of an additional 20 bankers across 10 new locations by June 2025.
The ongoing expansion of Judo Capital’s loan book is expected to bolster underlying profit, positioning the company for continued growth. Monitoring the level of arrears in the coming years will be crucial in determining future performance and share price movements.
