Shares in Judo Capital Holdings Ltd (ASX: JDO) are deeply in the red over a 12-month period, but after the release of the company's results this week, brokers are tipping a rebound.
The shares fell sharply in late-June after the company announced a downgrade in expected pre-tax earnings from $180 to $190 million down to $163 to $169 million.
Over a 12-month period, the company's shares are 39.6% lower.
But after the company's results this week, the analyst teams at both Morgans and Macquarie are tipping some serious share price upside for the stock.
Image source: Getty Images
Judo looking forward after solid profit result
Let's have a quick look at what Judo reported this week.
The company reported a pre-tax profit of $168.1 million, up 34%, with Judo saying this reflected strong revenue growth.
Judo enjoyed above system lending growth, with gross loans and advances of $14.7 billion, up 18% year on year, at the top end of guidance.
Deposit balances also grew 24% to $12.2 billion.
Judo is expecting pre-tax profit to come in at $210 to $220 million for the current year.
Chief Executive Officer Chris Bayliss said regarding the result:
FY26 has been another year of genuine momentum for Judo. While the increase in specific provisions late in the year was disappointing, the underlying performance of the Bank has remained strong, with record revenue, continued operating leverage, strong deposit growth and lending at the top end of guidance. We have continued to deliver above-system growth, underpinned by our customer value proposition of smarter judgement, faster decisions, and stronger relationships. With major investments in our core technology platforms behind us, we are now focused on delivering operating leverage and driving our return on equity. As we continue to scale the loan book, we are seeing more of our revenue growth translate to profit growth. Our cost to income ratio has improved significantly to now be the lowest in the sector3, and will keep improving as we scale.
Judo Capital shares looking cheap
Macquarie said in a note to its clients that the question is "whether Judo is able to achieve that balance between margins, growth, and credit quality to achieve returns at scale''.
The analysts said while it was difficult to be certain, "we think the valuation discount adequately compensates the risks''.
Macquarie has a price target of $1.65 on Judo shares compared to $1.06 currently.
Morgans meanwhile said they expected earnings growth to be in the strong double digits from FY26 to FY28.
They said:
Short-term target price is $1.42/share, but we think by the end of this decade JDO could be worth close to $2/share. JDO is higher risk and more cyclically exposed than the major banks, but investors are compensated by higher potential returns at current prices.
