Advanced Banking Platform Will Unlock SME Digital Demand

Key Takeaways

• Technology investments and innovative banking solutions position Judo to benefit from underserved SME and regional markets, driving revenue growth and improved margins.
  
• Expanded deposit offerings and specialized credit assessment support stable funding, asset quality, and profitable scaling amid regulatory and market tailwinds.
  
• Heightened competition, increased funding and operating costs, and credit risks threaten lending margins, earnings growth, and profitability amid ongoing reliance on SME portfolios.

Catalysts

Through its subsidiaries, engages in the provision of various banking products and services for small and medium businesses in Australia.

• Judo's ongoing technology investment and platform re-architecture has enabled a step change in product flexibility, operational efficiency, and banker productivity; this positions the bank to capitalize on accelerating SME demand for digital-first, agile banking solutions, supporting long-term revenue growth and margin expansion.
  
• The continued withdrawal of major banks from regional and SME lending-leaving these segments underserved-creates opportunity for Judo to capture outsized market share; this is expected to result in above-system loan book growth and higher net interest income relative to competition.
  
• Judo's strategic move into diversified deposit products (e.g., new high-interest savings accounts and targeted loyalty bonuses), enabled by their advanced core banking platform, will lower funding costs, improve deposit mix, and support net interest margin stability and improvement over the medium term.
  
• Government and regulatory support for SME lending and fintech innovation continues to provide a favorable backdrop for specialist lenders like Judo, enabling further expansion of their TAM (total addressable market) and underpinning sustained revenue and PBT growth.
  
• Judo's specialty in judgment-based credit assessment, coupled with advanced data analytics and a granular, engaged banking model, should continue to support stable asset quality and manageable credit losses, enhancing operating leverage and return on equity as the business scales.

Judo Capital Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Judo Capital Holdings's revenue will grow by 24.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 24.9% today to 32.5% in 3 years time.
• Analysts expect earnings to reach A$219.4 million (and earnings per share of A$0.19) by about August 2028, up from A$86.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$267.6 million in earnings, and the most bearish expecting A$188.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.2x on those 2028 earnings, down from 22.6x today. This future PE is lower than the current PE for the AU Banks industry at 14.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.73%, as per the Simply Wall St company report.

Judo Capital Holdings Future Earnings Per Share Growth

Risks

• Elevated competition and lack of pricing discipline in SME lending are driving higher loan run-off rates (up to 22–27%) and could pressure loan book growth, compress lending margins, and reduce net interest income if sustained.
  
• Funding costs remain a vulnerability, shown by recent NIM volatility from deposit market conditions and reliance on term deposits, and the transition to new savings products may increase funding cost variability, affecting net margins and profitability.
  
• The planned expansion in warehouse lending, while accretive to ROE, will be a drag on NIM as warehouse loans are originated at lower margins, potentially diluting overall net interest margin and constraining earnings growth if volume increases rapidly.
  
• Ongoing portfolio seasoning, high sectoral concentration in SME lending, and shifts in provision coverage (including rising downside scenario weights) suggest latent credit risk remains; a turn in the SME credit cycle could increase impairment expenses and erode net profits.
  
• The operating expense base is heavily people-driven and wage inflation (including higher banker pay) and new product costs are expected to keep OpEx growth in the high single digits; if revenue growth lags, this reduces operating leverage and puts pressure on earnings and return on equity.

Valuation

• The analysts have a consensus price target of A$2.074 for Judo Capital Holdings 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$2.4, and the most bearish reporting a price target of just A$1.4.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$674.6 million, earnings will come to A$219.4 million, and it would be trading on a PE ratio of 13.2x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of A$1.75, the analyst price target of A$2.07 is 15.6% 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.