The S&P/ASX 200 Index (ASX: XJO) stock Johns Lyng Group Ltd (ASX: JLG) suffered a 12% selldown during April. In contrast, the ASX 200 dropped 2.9% over the month.
As we can see on the chart above, the ASX 200 stock has experienced its fair share of volatility over the past 12 months.
Let's look at what's been happening lately for this business, which provides repair and restoration work for buildings impacted by insurable events like fire, floods, and storms.
What's going wrong?
Johns Lyng has faced a couple of headwinds in the last few months.
At the end of March, director Adrian Gleeson sold 100,000 Johns Lyng shares for $6.18 per share. Entities he's associated with still own more than 1.6 million shares, so he still has a lot of skin in the game. But an insider share sale typically doesn't inspire the market with confidence.
And in its FY24 first-half result released in February, the ASX 200 stock revealed that catastrophe-related revenue had plunged 35% to $120.4 million. This caused total revenue to decline by 4% to $610.6 million.
Is this an opportunity for a rebound for the ASX 200 stock?
While catastrophe revenue may be down in the short term, the company is confident for the longer term. In its HY24 result, it said:
Although inherently unpredictable, workflows stemming from CAT events continue to exhibit larger and more enduring characteristics, with work from prior events extending into FY24.
… We are also seeing an ongoing and escalating trend within our CAT business, characterised by the heightened value and prolonged duration of these events, which continue to have a multi-year impact on our business.
…JLG's extensive experience, proficiency, and longstanding relationships with Governments and insurers ensures it is well positioned to assist affected communities through recovery and resilience efforts. The Group's Disaster Management Australia (DMA) business is now proudly Australia's market leading national disaster response company.
The company expects the catastrophe segment to continue to expand in future periods, including with its geographic footprint.
Johns Lyng Group's core business continues to perform strongly, which led to it increasing guidance by mid-single digits for sales and earnings before interest, tax, depreciation and amortisation (EBITDA).
Solid growth in the core business — insurance building and restoration services — saw revenue rise 13.7% to $426.1 million. The ASX 200 stock's overall normalised business as usual (BAU) net profit after tax (NPAT) rose 15.8% to $25 million.
If the core earnings can keep growing at a compound annual growth rate (CAGR) of more than 10%, then this could excite the market about the business again.
Promising wins
Excitingly, the business has just been chosen to work with large insurance companies in both in the United States and New Zealand.
In the US, it has joined the Allstate emergency response and mitigation panel – Allstate is one of the largest insurance companies in the US. In New Zealand, it has been chosen by Tower Ltd (ASX: TWR) to provide building repair services.
Valuation
According to the estimate on Commsec, the Johns Lyng share price is valued at 25x FY25's estimated earnings. I think it's a long-term buy.
