If you're looking for a bank stock that's undervalued, it might be worth taking a look at the relative minnow in the sector, which is Judo Capital Holdings Ltd (ASX: JDO).
Judo, which specialises in the small to medium enterprise (SME) banking area, is worth just $1.82 billion – a tiny fraction of the big four banks, such as the Commonwealth Bank of Australia (ASX: CBA) at $289 billion or Westpac Banking Corp (ASX: WBC) at $134.3 billion.
And unlike the big four, Judo currently doesn't pay a dividend, so it's all about capital return. So what is the company worth?
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Positive AGM update
Judo held its annual general meeting on Tuesday, and investors seemed to like what they heard, pushing the shares 5.1% higher to $1.71 by early afternoon.
But at least one broker, E&P Capital's Oliver Coulon, believes the shares have a way to run yet. So why is that?
Managing director Chris Bayliss on Tuesday delivered an upbeat assessment of how the company is travelling at the moment, saying Judo grew its SME lending franchises to 31 locations over the past financial year, and now serviced close to 4700 customers.
The company's loan book grew 16% to $12.5 billion during the year, by nearly double the overall market rate, and underlying profit before tax rose 14% to $125.6 million.
Niche focus delivering
Mr Bayliss said lending momentum had also remained strong over the first quarter of FY26, and the company was confident it would meet its net interest margin guidance of 3% to 3.1%.
Overall, we remain on track to achieve our FY26 guidance, which culminates in profit before tax of $180-190 million, reflecting around 50% profit growth versus FY25. We have a clear and simple strategy to be Australia's most trusted SME business bank, and our conviction in our strategy has never been stronger. No other bank has the combination of our pure-play SME-focus, our culture, and a platform that enables us to deliver our superior customer value proposition to the SME market, and in turn deliver sector-leading returns.
Mr Coulon said in an update on the company that Mr Bayliss delivered "overall a constructive update'', with positive comments around net interest margins and guidance.
He added that the company's stock price has been "very weak" since it announced its full-year results in August, and with the company trading at "only" 15.1 times FY26 earnings per share, "we see scope for positive share price performance today''.
Mr Coulon has a valuation on the company of $2.31 per share, which, if achieved, would represent an uplift of 35.1%.
