Release Date: February 17, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Judo Capital Holdings Ltd (ASX:JDO) reported a 33% increase in profit before tax, showcasing strong financial performance.
• The company has successfully expanded its lending franchise, adding 15 new business bankers and 5 new regional locations, indicating growth and regional penetration.
• Net Interest Margin (NIM) has been strong, with positive tailwinds leading to an upgrade in NIM guidance for the second half and full year.
• Judo's customer satisfaction remains high, with a leading Net Promoter Score (NPS) of 51, significantly outperforming incumbent banks.
• The company has maintained stable credit quality metrics, benefiting from proactive portfolio management initiatives.

Negative Points

• The company faces challenges with increased runoff due to proactive initiatives, impacting growth balance.
• There is a potential risk of volatility in impairment expenses, as noted by the company maintaining its cost of risk guidance.
• Judo Capital Holdings Ltd (ASX:JDO) has not upgraded its profit before tax guidance despite improved margin forecasts, indicating potential offsets elsewhere in the income statement.
• The company acknowledges the competitive environment, particularly in the business banking sector, which could impact future growth.
• There is a noted increase in average risk weight, reflecting a shift towards higher-risk lending segments, which could affect the company's risk profile.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Sign with ASX:JDO.

Q: Given the extent of deferred tax assets and expanding profitability, could Judo Capital run a tax rate slightly below 30% going forward? A: (CFO) The effective tax rate was 28% this half due to a one-off impact related to incentive schemes and share price movements. Going forward, we expect the tax rate to be around 30%, with some drag from non-deductibles.

Q: Where are most of your external refinances heading, and is there a pattern with respect to a particular bank or competitor? A: (CEO) We see some refinancing back to major banks and private credit, but it's not driven by competition. It's more about reassessing customer risk pricing. Our strong broker relationships help facilitate this process.

Q: With the average of 28 accounts per banker, can you increase the number of customers per banker to achieve more scale benefits? A: (CEO) The broker model is efficient, allowing bankers to manage larger customer bases. We are seeing a structural shift towards brokers, which supports this efficiency.

Q: Could you elaborate on the savings products you're developing and their impact on your funding mix? A: (CEO) We have no intention of doing transactional banking. We're exploring high-interest savings accounts to provide more funding options and lower overall costs, but not transactional accounts due to operational risks.

Q: Why didn't you upgrade the guidance for profit before tax despite upgrading the margin forecast? A: (CFO) The margin upgrade reflects increased confidence in full-year trends, particularly in NIM trajectory. However, there can be volatility, so we're managing all levers carefully.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.