The S&P/ASX 200 Index (ASX: XJO) stock Johns Lyng Group Ltd (ASX: JLG) seems like a promising long-term investment. I believe it has the potential to double in five years.
The business is reporting later this week, so there's a fair chance that the share price will react negatively to the result or the FY25 commentary. However, I'm calling it a buy today, and if it fell, I'd be even more excited to add to my position.
Johns Lyng delivers restoration services across Australia and the USA. Its focus is on rebuilding and restoring various properties and contents after damage caused by insured events, including impact, weather, and fire.
Before I make my optimistic comments about the company, let's examine its guidance for the 2024 financial year (which the company has not retracted since its FY24 half-year result).
FY24 guidance
Johns Lyng said it's guiding for revenue of $1.2 billion, and business as usual (BAU) revenue is expected to grow by 18.5% to $1 billion.
The FY24 group earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to be $136.4 million, while BAU EBITDA is forecast to rise 21.6% to $114.4 million.
If achieved, those numbers suggest solid revenue growth and operating leverage for the ASX 200 stock, where profit rises faster than revenue thanks to improving margins.
Core growth outlook
In its commentary regarding guidance for the second half of FY24, the company stated that it anticipates several positive developments, which I believe are relevant to FY25 and beyond. Those positives include job volume ramp-up from recent contract wins, new clients and contracts, deeper market penetration in WA, SA, NT, Tasmania and New Zealand, a continuing roll-out of Johns Lyng's strata services, the roll-out of additional Johns Lyng service lines in the US and the integration of recent acquisitions (with revenue synergies expected).
The company noted at the time that additional acquisitions were under assessment.
I'm excited by the company's international potential to grow in the US, New Zealand, and any other markets that it can expand into in future years. The ASX 200 stock has already shown it is willing to expand into new countries.
Appealing acquisitions
Johns Lyng has steadily expanded its service offerings and addressable markets by making very useful bolt-on acquisitions.
The latest announcement was another pleasing move, in my opinion.
The ASX 200 stock is buying 100% of SSKB Strata and 84% of Chill-Rite HVAC for a total upfront cost of $57.6 million.
SSKB is a provider of strata and related services focused on the east coast of Australia. Its portfolio includes over 44,000 lots.
Chill-rate is a leading provider of heating, ventilation and air-conditioning services in regional NSW. This acquisition creates a "strong foundation for further organic expansion into regional Queensland and Victoria" and builds the company's capacity to service larger national contracts with blue-chip clients.
With these acquisitions, I think the outlook is more positive for this ASX 200 stock.
