Investors cast eye over Judo Bank as share price tumbles

Judo Bank chief executive Joseph Healy.

Judo Bank is in focus lately, with many in the market now describing its share price as exceedingly cheap.

The business lender’s book value is $1.40 per share and its shares are trading at $1.

Equity analysts are valuing the business at about $1.60 per share.

Judo listed in 2021 with a $2.3bn market value equating to 1.7 times its book value and it’s now worth $1.13bn.

The obvious buyers for the bank, which lends to small and medium-sized businesses, is Bank of Queensland or Bendigo and Adelaide Bank.

But major banks such as Macquarie Group, Westpac and ANZ could buy Judo without obvious objections from the Australian Competition and Consumer Commission, according to market insiders, as could a bank from overseas such as one from Japan.

Judo shares have been sold off on concerns that the lender’s funding costs have dramatically increased in the rising interest rate environment, and because it is no longer able to source
discounted funds from the government since the global pandemic.

It also has to offer higher interest rates on its deposits to attract customers.

But the company’s argument is that it has planned for the funding cost increases and charging higher interest on its term deposits is part of its business model.

Last week, it announced it tapped the bond market for $500m.

It is on track to meet all of its targets that it outlined to investors in the build up to its initial public offering.

This includes its lending book growing to $20bn by 2026 (it is currently on track to do this with it now at $9bn), a net interest margin of 3 per cent, common equity tier 1 in the low 30s, cost of risk below 50 basis points and is aiming to deliver a return on equity in the mid teens.

Bank of Queensland is currently being run by former chairman Patrick Allaway, which was always thought to be a temporary arrangement until it found a chief executive.

The well regarded Judo boss Joseph Healy, a former top NAB executive, could run Bank of Queensland post the acquisition.

But the understanding is that BOQ still has plenty of work to do integrating ME Bank before it embarks on another acquisition and some believe Mr Allaway could be in there tidying up the operations for another two years.

Insiders believe that buying Judo makes a lot of sense for Bendigo and Adelaide Bank, which would benefit from a lift to its business banking capabilities.

It could run Judo with a lower cost of capital.

But if that were to be the case, boss Marnie Baker would likely remain at the helm.

Judo’s adviser is Barrenjoey.

While there’s not thought to have been any buyout approaches so far, some believe there would be interested contenders almost certainly running the numbers.

For the year to June, Judo delivered a 104 per cent increase in operating income to $353m and a $73m net profit. Net tangible assets per share is $1.30.