T’was on Tuesday that shares in Judo Capital (ASX:JDO) retraced to an all-time low of $1.55 a pop, with local markets feeling the blunt end of the stick as US markets continued to quiver in the face of Chinese lockdowns and rising inflation.

So, Wednesday wasn’t looking like a good time for Judo to hold its inaugural strategy day.

With JDO stock down well over 20% in year-to-date trade, CEO and co-founder Joseph Healy could’ve been forgiven for catching a sudden dose of the Omicron instead of dishing out to analysts and stakeholders Judo’s outlook.

And yet, when the talking was over, the rising started. JDO shares, gone for all money a few hours earlier, were kicking on like their namesake.

At around 2.30pm Sydenham time Judo was almost 7% higher. On Thursday the buying continued, hitting $1.77 and closing about 6% the better.

The secret sauce

In its Investor Day on Wednesday, Chris Bayliss, deputy CEO and CFO, talked up JDO’s net interest margins (NIMs), saying while they might be bad news for most stocks, rising interest rates provide strong ballast for Judo’s funding strategy targeting over 3%, to be locked in at a fixed rate.

“The outlook for ongoing cash rate increases provides a significant tailwind for our margins given our lending portfolio is largely floating-rate, while our funding costs are predominantly fixed.”

Nice combo.

“As well as accessing fixed-rate funding from the RBA’s term funding facility, term deposits remain a very attractive source of funding. We are rewarding retail depositors with some of the most competitive term deposit rates in the market.

“At the same time, by utilising hedges, we are locking in our funding margins well below the levels required to deliver our at-scale NIM of over 3%.”

Terrific. This is what the brokers said about the presentation:


Citi: JDO rates as Neutral

Judo Capital Holdings’ strategy day reveals the company is tracking ahead of prospectus.

Citi notes Judo has deliberately been running an unhedged balance sheet mismatch and expects this will yield a strong, if short-lived, bump to net interest margins to 3.6% in the 2023 June half, up from 1.90% at the end of the December 2021 first half.

An improved revenue outlook will however be offset by rising costs.

Buy rating retained. Target price is cut to $1.90 from $2.40. (current price is $1.72)


Macquarie: JDO rates as Upgrade to Outperform from Neutral

Following the investor presso, Macquarie brokers saw a number of signals which favour investors, but mainly:

  1. JDO is positioned to deliver over the next three years, and seems to be lauding Judo for pre-funding the growth by getting more bankers on board – about 20 hires – accelerating way past expectations, up some 12%
  2. After a tough run – the stock is down 20% in six months, the brokers say the subsequent downgrade has made the risk-reward profile so much more attractive for investors

The rating is upgraded and the target price rises too: up 5 cents to $2.15 from $2.10.


Credit Suisse: JDO rates as Outperform

Credit Suisse says an opacity around the company’s interest rate exposure played a role in JDO’s share price demise, but since the presso they’ve created a bit of momentum.

Rising interest rates will offer JDO material tailwind: “With 91% of lending linked to the bank bill swap rate it anticipates immediate benefits to cash rate increases.”

CEO and co-founder Joseph Healy expects “superior outcomes” for risk management strategies, looks forward to a positive funding market outlook, and hints at a working model to create “sustainable competitive advantages”.

“Judo Bank is a young business with strong growth ambitions. Our year-to-date performance shows we have strong momentum. We continue to drive strong lending growth and remain confident of achieving our prospectus forecast for GLA of $6.0 billion by 30 June 2022,” Healy said.

The rating (Outperform ) and target price are steady at $2.75.