US Expansion And Home Services Focus Will Strengthen Future Operations

Key Takeaways

• Expansion in the U.S. with new service lines and partnerships is expected to drive organic growth and increase revenue.
  
• Focus on essential home services offers a subscription model, providing earnings visibility and protection from inflationary pressures.
  
• A potential revenue downturn, margin decrease, and reliance on M&A growth present challenges, while benign weather impacts stability and conservative US growth projections may fall short.

Catalysts

Provides integrated building services in Australia, New Zealand, and the United States.

• Expansion in the U.S. market with new service lines and strategic partnerships is expected to drive organic growth, potentially increasing revenue.
  
• Implementation of the proven equity partnership model in the U.S. and appointment of a new CEO for JLG USA enhances operational efficiency, aiming to expand margins and earnings.
  
• The acquisition of additional strata management businesses and expected synergies could contribute to stable, recurring revenue streams and improve net margins.
  
• The focus on essential home services, like smoke and fire alarm maintenance, offers a subscription-based revenue model, providing earnings visibility and protection from inflationary pressures.
  
• The ongoing work on major U.S. natural disaster recovery projects, like Hurricane Ian, and the potential for future government contracts provide a pipeline that could sustain revenue and earnings growth.

Johns Lyng Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Johns Lyng Group's revenue will grow by 7.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 4.6% in 3 years time.
• Analysts expect earnings to reach A$67.1 million (and earnings per share of A$0.24) by about February 2028, up from A$48.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as A$75.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.0x on those 2028 earnings, up from 20.8x today. This future PE is greater than the current PE for the AU Construction industry at 17.5x.
• Analysts expect the number of shares outstanding to grow by 0.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.99%, as per the Simply Wall St company report.

Johns Lyng Group Future Earnings Per Share Growth

Risks

• The potential downturn in revenue is a concern, as the previous year's figures were boosted by record contributions from natural disaster-related projects, which may not recur at the same level, impacting future earnings.
  
• The benign weather conditions in the latter part of FY '24 negatively affected the Express business, which could indicate vulnerability in revenue stability if similar conditions persist.
  
• Profit margins are expected to decrease for FY '25 compared to the previous year, which could signal challenges in maintaining past profitability levels, impacting net margins.
  
• The reliance on M&A for growth could present risks if strategic acquisitions do not yield the expected revenue synergies or if integration issues arise, affecting overall earnings.
  
• The 10% to 15% projected growth for Johns Lyng USA may be conservative, but if it does not materialize, this could lead to lower-than-expected revenue contributions from the U.S. operations.

Valuation

• The analysts have a consensus price target of A$4.833 for Johns Lyng Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$6.1, and the most bearish reporting a price target of just A$3.95.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.5 billion, earnings will come to A$67.1 million, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of A$3.55, the analyst price target of A$4.83 is 26.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.