This ASX 200 stock crashed 12% in April. Is it now on the rebound?

This stock could be a compelling turnaround story.

| More on:
A young boy reaches up to touch the raindrops on his umbrella, as the sun comes out in the sky behind him.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Motley Fool contributor Tristan Harrison has positions in Johns Lyng Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Johns Lyng Group. The Motley Fool Australia has recommended Johns Lyng Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

business man with cigar, counting cash, CEO, business executive
Opinions

Top ASX stock to buy as a thrifty investor (the old Warren Buffett way)

I reckon this ASX stock would be a prime contender if Warren Buffett was working with $10,000 or less and…

Read more »

A mature aged man with grey hair and glasses holds a fan of Australian hundred dollar bills up against his mouth and looks skywards with his eyes as though he is thinking what he might do with the cash.
Dividend Investing

Is now a good time to buy this high-yield ASX dividend stock?

My view is that a high yield doesn't always make for a good buy.

Read more »

An excited man stretches his arms out above his head as he reaches a mountain peak representing two ASX 200 shares reaching multi-year high prices today
ETFs

Should you buy Betashares Nasdaq 100 ETF (NDQ) at an all-time high?

Can an investment at an all-time high be a good idea?

Read more »

A man in a supermarket strikes an unlikely pose while pushing a trolley, lifting both legs sideways off the ground and looking mildly rattled with a wide-mouthed expression.
Consumer Staples & Discretionary Shares

Here's the Coles share price I would buy at

I'd be happy to buy Coles... at the right price.

Read more »

A happy young boy in a wheelchair holds his arms outstretched as another boy pushed him.
Opinions

These 2 ASX shares could win big time in the long term

I think these stocks have very appealing outlooks.

Read more »

Two excited woman pointing out a bargain opportunity on a laptop.
Opinions

2 great value ASX shares I want to buy

These stocks are high on my watchlist.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop
Opinions

1 ASX 200 dividend stock down 20% to buy right now

This beaten-up ASX share could be a top pick for dividends and stability.

Read more »

Man sitting in a plane looking through a window and working on a laptop.
Opinions

2 cheap ASX 200 shares I'd buy in May

I think these stocks are too cheap to ignore.

Read more »