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Judo Capital Holdings Ltd (ASX:JDO) shares are witnessing a notable rebound today, recovering from a significant selloff observed in the previous trading session. During morning trading on the ASX All Ordinaries (All Ords) index, the shares of this small business lender have surged impressively by 14%, reaching a current value of $1.13.
This rebound in Judo Capital's shares contributes to the overall dynamics of ASX financial stocks. The positive movement reflects an upward trend in the broader financial sector, which can be crucial for investors monitoring the performance of financial stocks on the ASX. The recovery in JDO shares suggests renewed confidence in the small business lending market, with potential implications for the broader financial landscape.
The recent sell-off occurred after analysts at Citi downgraded Judo Capital's shares from a buy rating to a sell rating on Monday. Citi's downgrade was based on the belief that the market had overly optimistic expectations for Judo Capital in the fiscal year 2025 (FY 2025).
However, Judo Capital has provided an update today that suggests the market's expectations may not be as unrealistic as Citi had indicated, considering the company's performance in the first half of FY 2024.
According to the morning update, Judo Capital anticipates reporting a half-year result that surpasses consensus estimates. The unaudited profit before tax (PBT) for the first half is reported at $67 million, reflecting a 24% increase compared to the prior corresponding period. The company attributes this growth to sustained above-system lending expansion, robust net interest margins, ongoing investments in growth, and minimal write-offs.
In terms of lending, Judo achieved net lending growth of approximately $800 million over the six months, representing about three times the system business credit growth. The net interest margin for this period is reported at 3.02%.
Looking forward to the second half, Judo Capital expects to maintain its positive performance. The company forecasts a second-half PBT in the range of $40 million to $45 million, resulting in a full-year FY 2024 PBT estimate of $107 million to $112 million. While it anticipates a slight softening in the net interest margin to between 2.85% and 2.90% for the entire 12 months, it believes the second half will mark the trough in margins.
Additionally, in its outlook for FY 2025, Judo Capital is targeting profit growth of 15% or higher for the financial year.
The positive update from Judo Capital has likely contributed to the strong rebound in its shares, as investors may be reassured by the company's performance and future outlook, countering the concerns raised by Citi's downgrade.
