Stock pick: Eley Griffiths

Johns Lyng Group (ASX: JLG) began life about 50 years ago in suburban Melbourne attending to the domestic construction market. Today the group’s footprint extends nationally as the country’s leader in dwelling restoration and rebuilds in the wake of damage caused by insurable events such as storms or bushfires.

JLG is a service company that has developed a platform allowing key trades and building specialists to access a diversified clientele of insurance companies and brokers, retailers and various state and local government departments.

Fundamentally the revenue model revolves around securing timely ‘business as usual’ repair works with the earnings super-charged via the occurrence of not infrequent natural catastrophes. To date in 2020, two significant bushfires and four storm systems have generated a marked uplift in work on hand. As at March end, approximately 42,000 jobs had been registered versus approximately 60,000 for all of 2019, underwriting this calendar year and likely through the first half of 2021.

JLG boasts no significant national competitors and historically has successfully recruited the required subcontractors to meet the accumulated job pipeline.

JLG’s ‘horizon 2’ has been infilled by several thoughtful acquisitions including a move into deep-cleaning operations for COVID-19 site management. The group has also positioned itself in the strata apartment repair business. The recent acquisition of Capitol Strata takes the total apartments under management to approximately 74,000, with a potential workload pool of approximately AUD 200 million per annum. 

The company is light on fixed assets, has net debt of less than AUD 10 million and is earning an incremental return on equity of more than 40% on capital employed. Priced on 30 times FY20 earnings, broker consensus expects 25% and 16% earnings per share (EPS) growth looking through the two reporting periods ending 2021.

Eley Griffiths Group Confirms it is a shareholder in JLG. 

This information has been prepared and provided by Eley Griffiths. To the extent that includes any financial product advice, the advice is of a general nature only and does not take into account any individual’s objectives, financial situation or particular needs. Before making an investment decision an individual should assess whether it meets their own needs and consult a financial advisor. This stock pick was published on 22 May 2020 and is subject to change.