Earnings call transcript: Judo Capital Q3 2025 sees stock dip amid competition

Judo Capital Holdings Ltd (JDO), currently valued at $1.27 billion, experienced a notable 16.85% decline in its stock price following its Q3 2025 earnings call. The company reported a subdued net growth in gross loans and advances due to seasonality and proactive portfolio management, despite maintaining a strong financial position with a CET1 ratio of 13.8% and a blended lending margin improvement to 4.3%. According to InvestingPro analysis, the stock appears fairly valued, with analysts setting price targets ranging from $0.86 to $1.66.

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Key Takeaways

• Judo Capital’s stock fell by 16.85% post-earnings call.
• The company maintains a strong CET1 ratio of 13.8%.
• Subdued loan growth attributed to seasonal factors and portfolio management.
• Blended lending margin improved to 4.3%.
• Increased competition in the SME lending market.

Company Performance

Judo Capital Holdings reported a subdued net growth in gross loans and advances for Q3 2025, attributed to seasonal factors and proactive portfolio management. The company, which trades at a P/E ratio of 37.54 and has a beta of 1.36, managed a blended lending margin improvement to 4.3% and maintained a robust CET1 ratio of 13.8%, indicating a solid financial foundation. The term deposit balance also grew to over $9 billion, though InvestingPro data shows the company is currently burning through cash with a negative free cash flow yield of -89%.

Financial Highlights

• Gross loans and advances: $11.7 billion as of March.
• Blended lending margin: 4.3% in Q3.
• Net Interest Margin (NIM): within the targeted range of 2.9% to 3%.
• CET1 ratio: 13.8%.

Outlook & Guidance

Judo Capital has revised its FY 2025 Gross Loan Advances (GLA) guidance to $12.4-$12.6 billion and is targeting a 15% profit before tax growth. The company is aiming for a 50% profit before tax growth in FY 2026, with an expected loan growth of $2-2.5 billion. The target exit NIM is set at 3%.

Executive Commentary

CEO Chris Baylis expressed confidence in achieving sector-leading ROE in the low to mid-teens, emphasizing the company’s metrics of scale. He highlighted the balance between growth and economics to maintain appropriate margins and returns on risk. CFO Andrew Leslie noted the importance of monitoring swap rates and potential cash rate cuts.

Risks and Challenges

• Increased competition in the SME lending market could pressure margins.
• Volatile economic environment may affect customer behavior.
• Potential cash rate cuts could impact deposit pricing and profitability.
• Cost growth driven by wage inflation and amortization of intangible assets.
• Challenges in regional banker expansion and temporary deposit margin volatility.

Q&A

During the earnings call, analysts inquired about the challenges in expanding the regional banker network, the temporary volatility in deposit margins, and the cost of risk expectations. The potential impact of cash rate cuts on deposit pricing was also a key topic of discussion. With an overall Financial Health score of 2.15 (FAIR) from InvestingPro, investors can access detailed insights and the comprehensive Pro Research Report, part of the extensive analysis available for over 1,400 stocks on the platform.

Full transcript - Judo Capital Holdings Ltd (JDO) Q3 2025:

Conference Operator: Thank you for standing by, and welcome to the Judo Capital Holdings Limited Trading Update. Today’s call will be hosted by Judo’s CEO, Chris Baylis and CFO, Andrew Leslie. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Chris Bayliss.

Please go ahead.

Chris Baylis, CEO, Judo Capital Holdings Limited: Thank you, and good afternoon, everyone, and thank you for dialing into our trading update, which we launched on the ASX a few hours ago. In terms of format, we anticipate this presentation will take no more than about ten or fifteen minutes and it will allow plenty of time for Q and A. I’ll kick off and provide some color on Judo’s overall performance in the financial year to date and then I’ll hand to Andrew Leslie, our CFO, who will cover the financials and then I’ll come back and provide an update on our FY 2025 guidance and comment briefly on our FY 2026 expectations. And as I said, hopefully, we’ll have plenty of time for questions and answers. So on to our performance.

In the last quarter, since our half year update back in February, our team at Judo continues to execute our clear and simple strategy of being a pure play specialist SME lender. It will be of no surprise that in the short term, the operating environment has become increasingly volatile. And so our focus has been to proactively balance growth and economics, while progressing towards our at scale ROE in the low to mid teens, which we remain very confident of achieving. So, pleasingly, there continues to be very strong support for our unique customer value proposition. Our NPS remains market leading at plus 51, significantly higher than any of the other incumbent banks.

And in fact, our origination NPS over the last quarter since we last spoke has never been higher at 88 for the quarter. And so our SME lending franchise is very strong and in particular, the growth we’re achieving with our regional expansion is excellent. In fact, I just I couldn’t be more happy with it. We’re actually now we now have 158 highly experienced relationship bankers in 27 locations and we’re bang on track to achieve our target of 31 locations nationally by the June. Also as planned, our deposit franchise is also expanding, reaching over $9,000,000,000 at the March.

And pleasingly, during this third quarter, we completed the migration to a new core deposit platform, Thought Machine, which is what our lending core bank is on as well. And that provides us with significantly greater flexibility to broaden our deposit product suite and also optimize margins. It does mark a major milestone for us. It’s twelve months of dedicated effort delivering transformative results. And please me now, all of Judo’s core technology systems now operate on modern enterprise grade scalable platforms.

So the CapEx with regards to moving now to our future scalable platforms is complete. And this of course is the benchmark that other incumbent banks are investing heavily to try and achieve. Now on that note, as I said, this is a relatively brief update. I’ll hand over to Andrew now just update on some of the financials for the last quarter and then I’ll come back afterwards to discuss our outlook for the last two months of this year and then we’ll touch very briefly on how we’re seeing FY 2026. So Andrew, over to you.

Andrew Leslie, CFO, Judo Capital Holdings Limited: Thanks, Chris, and afternoon, everyone. Turning now to our financial performance for the third quarter of FY twenty twenty five. Gross loans and advances were $11,700,000,000 at the March. Net growth in the third quarter was subdued, reflecting normal seasonality in January and February when many of our customers and professional services firms we use were still coming back from holidays. Our book, however, continues to amortize and we also experienced some residual impacts of proactive portfolio management that we undertook in the first half twenty twenty five.

Margins on new lending remained strong at 4.6% and this contributed to an improved blended lending margin of 4.3% in Q3. Our AAA pipeline has grown significantly since December to now stand at 1,600,000,000.0 with an average margin in the mid-400s over swap and this positions us well for a strong fourth quarter. On fund, as Chris just mentioned, our term deposit balance grew to over $9,000,000,000 in the quarter. The blended cost of deposits in Q3 was consistent with our expected through the cycle range of 80 to 90 basis points over swap. Q3 NIM was within the targeted range for second half twenty twenty five of 2.9% to 3% supported by blended lending and funding margins together with tight liquidity management.

In the past few weeks, we have however seen an increase in the cost of new deposits and as folks are aware, our deposit margins are the function of headline rates and the swap rate. Swap rates have been very volatile given the changing expectations for the cash rate of late. And our headline rates in contrast are more stable with CD customers typically expecting that headline rate to move with the cash rate. The effect of this is a temporary disconnect between the headline TD rates and the swap rate with margins for new deposits having been above our through the cycle range. We’re confident this situation will normalize and our margins will return to our long run expected range of 80 basis to 90 basis points as the interest rate stabilizes.

Overall, despite some moving pieces, we reaffirm our NIM target for second half twenty twenty five of 2.9% to 3%. On to operating expenses, we continue to prudently manage our cost base and pleasingly cost growth has slowed since the first half. Looking forward to next year, with our major investments in core systems and operations now complete, expense growth is expected to be largely driven by wage inflation, with almost some heightened competition for frontline employees as well as amortization of intangible assets and some incremental growth related investments. Turning to credit quality. Cost of risk in Q3 was impacted by an increase in specific provisioning for a small number of exposures in vulnerable sectors, which we previously called out, including manufacturing services to construction and discretionary retail.

At the March, our key metric of ninety plus days past due in impaired loans was 2.46% of GLA, a moderate increase compared to 2.3% in December 2024, and we continue to watch credit quality closely. Lastly, we continue to maintain a strong capital position with a CET1 ratio of 13.8% as at March 31.

Chris Baylis, CEO, Judo Capital Holdings Limited: Back to you, Chris. Okay. Thanks, Andrew. Now on to FY ’20 ’20 ’5 outlook, which as I said earlier, is of course only two months away from our June close. On GLAs, we now expect to land June 25 somewhere between $12,400,000,000 and $12,600,000,000 in light of current market conditions.

And now this is lower than our guidance at the first half for a number of reasons. Firstly, as Andrew said, runoff has remained elevated as we’ve continued to proactively manage our existing book to maintain NIM, particularly loans that were funded during the term funding facility period. We’re also seeing generally customers being a little bit more cautious, delaying loan settlements. And we’ve also experienced a slightly slower ramp up in warehouse lending. But importantly, I want to stress that with regards to the short term volatility, particularly with regards to the cost of our deposits, we are proactively balancing growth and economics to achieve appropriate margins with an appropriate return on risk.

And just to put this into context, we were guiding to between 12,700,000,000.0 and $13,000,000,000 So this is sort of a reduction of about $315,000,000 on a close to $13,000,000,000 book. And we draw down about $250,000,000 per week. You can reconcile that to the $1,600,000,000 pipeline, which is generally about three months’ worth of drawdowns. So it’s about a two to three week slippage that we’re seeing with regards to where we were previously guiding the market to the June. FY ’20 ’20 ’5 NIM target is unchanged.

We’re targeting second half NIM at the upper end of the 2.9% to 3% guidance that we’ve given previously and we’re continuing to target an exit NIM of 3%. I do want to note that any further reductions in the cash rate, particularly before the June, will impact the exit NIM, although the impact will be temporary as our lending and deposit books will reprice over time. Operating expenses for FY 2025 have been well managed. And as a result, we now expect the FY 2025 cost to income ratio to be lower than FY 2024. And in terms of cost of risk, as a result of the increase in specific provisions that Andrew mentioned earlier, we now expect a slightly higher cost of risk in FY 2025 compared to FY 2024.

But importantly, overall, Judo continues to target FY 2025 profit before tax growth of 15%, which is the guidance we’ve held now for well over a year actually. We first gave that guidance back in January 2024. Now I’ll briefly touch on our FY 2026 expectations. As mentioned earlier, the completion of our major investments in core systems and operations is now complete. This together with strong lending growth will enable Judo to deliver the significant operating leverage that we have flagged previously.

Now assuming market conditions normalize and operating leverage inherent in our model will be evident from the second half of twenty twenty five, and we aim to deliver profit before tax growth of 50% next year. So to close, we remain confident in the outlook for our business. We remain confident in our metrics of scale and our ability to achieve a sector leading ROE in the low to mid teens. So on that, I’ll bring the presentation to a close, and myself and Andrew will welcome any questions that you have.

Conference Operator: Thank Your first question comes from Jonathan Mott from Baron Joey. Please go ahead.

Jonathan Mott, Analyst, Baron Joey: Chris, when you were previously talking about lending growth, you kind of had this expectation of around $3,000,000,000 in loan growth in GLA per annum. And I can understand the moving parts you’ve seen in this past with delayed growth given some of the issues around the world and elections and also elevated runoff. But is that GBP 3,000,000,000 growth in total loans still a viable target?

Chris Baylis, CEO, Judo Capital Holdings Limited: Yes. I mean, somewhere between two and three is very viable. If you break it down into we have 160 bankers now and if you sort of break it down, John, into sort of a monthly origination rate per banker. It works out at about $2.5.3000000 dollars per banker per month. Now that is also our average loan size.

So it really is no more than one loan per banker per month. Now runoff is something that we manage carefully as well. As you know, structural runoff in terms of capital and interest is about 8%. And we’ve always guided the market to assume runoff of about 20%. So simple math is we originate about $5,000,000,000 and we see about $2,000,000,000 2 point 5 billion dollars come off the back through runoff.

And I don’t see no reason why that shouldn’t continue. But we think of growth around about that $2,000,000,002,500,000,000 because we are very focused on protecting the economics of the book. And there’s no doubt about it, competition has increased significantly. We are seeing runoff elevated a little bit higher than what we had originally assumed at rates, which don’t make sense for us. But in simple maths, one hundred and fifty one hundred and sixty bankers originating sort of $900,000,000 per month with gross originations of sort of $5,000,000,000 with runoff at 20% of the $12,000,000,000 book, you sort of get to that $2,500,000,000 of growth now.

Jonathan Mott, Analyst, Baron Joey: Okay. And if we’re thinking this, obviously, a bit more elevated runoff just given competition, still growing the flow of new loans at pretty quickly, but a bit more runoff and a bit more competition comes along, it means it’s going to take longer to get to the scale economics than you probably originally intended or expected. Given that you’ve got inflation coming through and cost growth continue to come through as you called out, does that mean the scale metrics of cost to income approaching 30% is going to be, as being brutally honest, very, very difficult to achieve, which means that low to mid teen ROE metrics at scale is going be very challenging given that you’ve got probably going land at a higher cost of income?

Chris Baylis, CEO, Judo Capital Holdings Limited: I think it largely depends on your assumption around other operating income as well. There products that we intend to have, John, that we haven’t brought to market yet. I think we think there’s still upside on the NIM as well with regards to the more sophistication being brought to our deposit franchise. In that regard, we mentioned the investments that we’ve made and have now concluded in the new tech stack on Fort Machine, which gives us a lot more optionality around deposits. So we there’s no doubt about it.

I mean, the IPO, at time of IPO, we’ve probably pushed the metrics of scale out a year, maybe eighteen months. Some of that’s inflation, some of that is a higher runoff. But overall, we still remain very vague. We have a lot of levers at our disposal. Thank you.

Conference Operator: Thank you. Your next question comes from Matthew Wilson from Jarden. Please go ahead.

Matthew Wilson, Analyst, Jarden: Yes. Good morning, team. Hopefully, you can hear me. I’m stuck in a storm in Wellington.

Chris Baylis, CEO, Judo Capital Holdings Limited: Oh, yeah. That’s unusual for the second windiest city in the world.

Matthew Wilson, Analyst, Jarden: Yes. Well, it’s not it’s unusual for that to happen for me anyway. At this at December, we had a 59 bankers, and we were hoping to add 15. And today, you’ve just just disclosed you had 158. Has there been a change in the ability to attract relationship bankers to the bank?

Chris Baylis, CEO, Judo Capital Holdings Limited: No, no. We’ve in terms of our regional expansion, some of it has been a little bit slower. We’ve always said on regional expansion, we will only go to a new region where we can get the best banker in town, because that’s where our secret sauce around relationship banking really kicks in. That has been a little bit harder than we imagined to find bankers of the caliber that we want. And so that has been a little bit slower.

But no, I mean, I think our employment franchise and our employment brand is as strong as it’s ever been. And we certainly don’t have any problem attracting bankers. We have lost a few and that’s to the broking industry. We’ve lost a few in the last month. That’s a double edged sword for us.

On the one hand, we never want to lose bankers from Judo, particularly those who have got established relationships with our customers. But equally, they become advocates of Judo when they’re brokers. We get a disproportionate amount of flow from them. So it’s not something that I stress too much about. What we don’t do is lose bankers back to the main banks, that’s very importantly.

Matthew Wilson, Analyst, Jarden: Are are you still confident in attracting 15 more bankers this year?

Chris Baylis, CEO, Judo Capital Holdings Limited: How many we’ve we’ve got about yeah. I’m not I mean, it might be ten ten to 15, exactly on the landing spot, but, yeah, roughly there.

Andrew Leslie, CFO, Judo Capital Holdings Limited: Yeah. We’ve got a we’ve got a number, man, in the pipeline, and, you know, depending on, you know, where people finish up, etcetera. But, you know, it depends on timing of when people come on board, but

Matthew Wilson, Analyst, Jarden: Yep. As

Andrew Leslie, CFO, Judo Capital Holdings Limited: as Chris said, the the the brand is very strong.

Matthew Wilson, Analyst, Jarden: Yep. And just to sort of add some color to your ’26 guidance, I think consensus was looking at sort of 60% pay pay pay growth. You’ve come out with 50. Why and I was still only in it’s the May 1, and you’ve come out

: and given guidance on on ’26. You’re due to

Matthew Wilson, Analyst, Jarden: give you an investment update on the third of on the June 3. It looks like a slight downgrade to ’26?

Andrew Leslie, CFO, Judo Capital Holdings Limited: Yes. I mean we haven’t provided formal guidance around that matter. And I think in the context of today, we wanted to just come out and provide where we see that coming out for the market. We think that’s helpful. The big point is that the operating leverage of next year is there and that’s been a big part of our story as folks will know.

And we wanted to provide that as part of today. It’s driven by there’s obviously a couple of things on that with where we land with the loan book for this year is going to impact obviously next year. And we’re looking at our investment plans for next year as well. We’ve called out a little bit in terms of wage inflation amongst bankers. So we’ve got some visibility there in terms

Chris Baylis, CEO, Judo Capital Holdings Limited: make in

Andrew Leslie, CFO, Judo Capital Holdings Limited: frontline and growth opportunities. We wanted to flag those things. But importantly, it’s about that operating leverage that’s very real for us and that’s rather mechanical just as we have the wash through of continued top line growth, improvement in that NIM, which we’re reaffirming today, that 2.9% to 3%, the exit NIM at 3% and that sets us up really well for next year as well as obviously the operating leverage in terms of the underlying cost versus revenue growth.

Matthew Wilson, Analyst, Jarden: Thanks guys.

Conference Operator: Thank you. Your next question comes from Jason Shao from Macquarie. Please go ahead.

Jason Shao, Analyst, Macquarie: Hi, guys. Thanks for taking my question. Just on your cost of risk, you noted it was higher. I mean, are you able to give any sort of guidance around this sort of magnitude when you mentioned it’s higher? And you sort of outlined that it’s driven by more specific provisions.

Which sectors or segments are you sort of allocating those provisions to which they were named exposures?

Andrew Leslie, CFO, Judo Capital Holdings Limited: Yes. Thanks, Jason. I mean look, it is a volatile item as we’ve been calling out for a little while now, and we have seen a bit of that come through as we’ve called out today in terms of some a small number of specific provisions come through. And we’re obviously watching that book very carefully in this environment.

Matthew Wilson, Analyst, Jarden: But in terms of sectors, look, they’re

Andrew Leslie, CFO, Judo Capital Holdings Limited: really the ones that we’ve been carrying an overlay for, which is the whole reason why we have an overlay, I guess. They are the sectors we’ve been calling out for a while where we’ve been a little bit more cautious and that’s discretionary retail, it’s manufacturing, which for the SME customer base is a very broad definition, about onethree of our manufacturing the subset is in food and beverage subsectors. So it’s quite diversified in manufacturing. It’s not big heavy industry manufacturing, this is SME manufacturing. But there is and there has been some stress there.

And then construction services, which is asset finance and associated services to we’ve got a small asset finance book that has some exposure there. So it’s really those same sectors where we’re seeing the same levels of heightened stress in the book and where we have seen some of those specific provision come through.

Jason Shao, Analyst, Macquarie: Are you able to give any sort of color around the magnitude of IVDD?

Andrew Leslie, CFO, Judo Capital Holdings Limited: No, look, what we’ve said today is that and the guidance we’re providing is that looking at kind of last year’s the FY 2024, we’re expecting to be higher than that in terms of the dollar cost of risk. And the key there is just that there’s been some volatility in that number.

Jason Shao, Analyst, Macquarie: Yes. Thanks a lot for that. And just on deposits, you mentioned you might be able to take deposit repricing actions to offset some of sort of the swap rate pressures. How much scope do you think you have to do that, given that you sort of need deposits to fund your growth pathway? Is it margin dependent on competitive dynamics?

Matthew Wilson, Analyst, Jarden: Look, I think on deposits,

Andrew Leslie, CFO, Judo Capital Holdings Limited: it’s kind of quite interesting because it clearly is a component of NIM, but we’ve had a number of moving pieces in NIM, we’re holding the NIM guidance. So where we’ve seen deposit volatility in terms of that deposit come through has really been over the last really over the last kind of couple of weeks where the swap speculation in terms of the rates has been quite volatile. We and that has caused us to have cost of deposits kind of above that 80 to 90 long term through the cycle range that we’ve called out in terms of new deposits of late. If you actually look at our performance for the year to date to March, we’re kind of bang on where we need to be in terms of that blended cost of deposits for the nine months to March. There’s a bit of volatility there, but there’s also other things that are rolling off out of that book that means that the actual number that’s hitting NIM is less volatile than perhaps some of the front book dynamics that we’ve been calling out.

I think in terms of this, we what we’ve called out previously as part of how we’re managing our deposit book, we play the full set of tenders and channels here. We do price and can price quite dynamically. We don’t like to move the headline rate too sporadically because of the consistency that we like to bring to our customers. But we have had some success actually in bringing that headline to the rate down and that’s been consistent with market movements as well and is a lever that we have in terms of managing that dynamic. I think the other piece too, and we called this out at the first half result, is that we are looking at investments that we can make in our deposit franchise.

And this is something that’s actually quite exciting for us. We’re now on our new core deposit platform, as Chris mentioned. And that is a real unlock for us in terms of what we can do with investing in the TD product itself, but also in terms of looking at high interest online savings accounts such as a business online saving account and a high interest online savings account for retail. And we’re quite excited about that because we think that our proposition that we’ve had in the TD product, we can also bring to that market and will actually give us some more flexibility and diversity in terms of the deposit funding capability, but also some benefit in terms of actually the cost of that deposit book overall. And that’s something that we’re looking investments that we’re looking to make in FY ’20 ’20 ’6.

And it’s one of those levers that Chris said we have available to us as we think about the overall NIM and the overall economics that we can achieve through the NIM.

Conference Operator: Your next question comes from Andrew Trikes from JPMorgan.

Andrew Trikes, Analyst, JPMorgan: Firstly, just a question with respect to the unchanged FY twenty twenty five PBT guidance. Just I’m starting to see where the offset comes from, Andrew, to the higher cost of risk expectation. It doesn’t look like NIM expectations have changed And cost my rough math suggests you would need negative cost growth in the second half to offset that cost of risk that higher cost of risk. Can you just maybe comment on those aspects, please?

Andrew Leslie, CFO, Judo Capital Holdings Limited: No. Look, thanks for the question, Andrew. And look, you’ve done some good maths there. We did call out in the first half that we’re expecting that costs dollar costs in the second half to be broadly stable. And I think we’re expecting to come in a little bit better than that, and hence, your maths around it in terms of cost growth is right.

We called out also that in that first half, we had some unusual items that we kind of were carrying in there as well, which we banked in the first half. And so they’re not necessarily things we’re expecting in the second half. But we have done a little bit better there, and we have been prudent with how we’re looking at investments for the second half. So the simple kind of offset on a higher cost of risk is where we are kind of seeing that second half dollar cost come through.

Andrew Trikes, Analyst, JPMorgan: Okay. That’s helpful. And just on the sort of the broad FY ’twenty six guidance. I mean I think you sort of referred to assuming a stable economic conditions. But what is that assuming with respect to cost of risk versus the normalized assumption, normalization of sort of activity in the SME economy and deposit spreads, etcetera, just in broad terms?

Andrew Leslie, CFO, Judo Capital Holdings Limited: In terms of, yes, the stabilizing economy. Look, for us, maybe taking the cost of risk piece, which you mentioned first. Look, that is there’s an element there, I guess, of what we’re seeing through some elevated ninety days past due and just the time that it takes for some of those things to wash through and resolve. That is a number that can be a bit volatile as we’ve called out before. So assuming that we’re not seeing any change in rates and actually probably some improvement, I guess, in terms of how we’re seeing rate of specific provision ratings through FY 2026.

We’ve said we’re not out of the woods yet, but over the course of 2026, over the twelve months, we’d expect to see some of that kind of work through. I think in terms of deposit costs, we’re expecting volatility in terms of that swap curve to be a short term impact, if you like. A lot of this is speculation around the next couple of rate reductions. We’ve had election through this rate reduction speculation period. We’ve had tariffs, etcetera.

And so the that swap rate has front run expectations for falling rates. And that is a timing piece in our view. And ultimately, the deposit costs kind of catch up. And so we’re expecting that will occur. I think on deposits, reiterating the earlier point that I made, what we can do and what is in our control there is these investments in the in the deposit business, in the TD book on the new platform, but also the new deposit products we want to bring.

And that will give us a funding benefit that is a new thing for us. And so we’re doing what we can in our control there. So yes, there’s some assumptions there around that cost of risk and also I think there’s some stability in that swap volatility with the headline rates in terms of TDs kind of catching up to that swap front running of rate cuts.

Andrew Trikes, Analyst, JPMorgan: Sorry, just to go back to the cost of risk, would you expect it still to be meaningfully above that 50 basis point assumption for the long term?

Andrew Leslie, CFO, Judo Capital Holdings Limited: Well, that’s the 50 basis points is the ultimate kind of actual loss or actual write offs. Now our impairment expense, as people can see from the disclosures because of the accounting standards where we need to book all of that provision in the year of writing, That has been a little bit volatile. And I think folks noticed that in our last half. I mean the impairment expense was 57 bps in the first half twenty twenty four, it went up to 87 bps in second half twenty twenty four, it went down to 51 bps in first half twenty twenty five. It’s going to be up a little bit obviously with what we’ve said today in terms of the second half.

So that is an output I guess of what we’re writing and bringing through the book and the accounting treatment. But the actual expectations in terms of losses for the SME economy, which is really what our assumptions are based on is that, that 50 basis point ultimate kind of loss through the cycle assumption is still valid.

Chris Baylis, CEO, Judo Capital Holdings Limited: The best way of thinking about this is if our book was flat and not growing, and so the only charge to your P and L was what you were actually writing off, then that would be the that’s the 50 basis points benchmark. And we haven’t hit that.

Conference Operator: Your next question comes from Nathan Lead from Morgan Financial.

Nathan Lead, Analyst, Morgan Financial: Chris and Andrew, just a couple of questions for me. So first off, you talked about how the operating leverage is there and will be coming through. And you mentioned or you provided sort of qualitative steer

Andrew Leslie, CFO, Judo Capital Holdings Limited: in terms of

Nathan Lead, Analyst, Morgan Financial: the expense growth. But could you put a bit more sort of quantification around it for us in terms of either the CTI or the absolute growth coming through?

Matthew Wilson, Analyst, Jarden: It’s the in terms of the

Andrew Leslie, CFO, Judo Capital Holdings Limited: trajectory, I guess, as we look through kind of issue in item and then into next year, the I mean the cost growth is obviously part of the story in terms of operating leverage. The bigger piece in terms of operating leverage is obviously what’s happening with the NIM and the expectations for NIM expansion. But as we look at, I guess, costs and that trajectory, I mean previously, Kriti called out the fact that we’re going to see some lower expenses in the second half of this year for second half twenty twenty five. So the CTI will come down obviously for that second half twenty twenty five. For first half twenty twenty six and as we look into second half twenty twenty six, we’re working through kind of some of the phasing of some of those investments, the deposits etcetera, but operating leverage there and the CTI we see through that year being supportive of this story around operating leverage.

And hence, I think, Nathan, why we wanted to put that metric in for today in terms of that profit growth in terms of 26%. A lot of that is really the outputs of this operating leverage.

Nathan Lead, Analyst, Morgan Financial: Yes. Got it. Just interested on the term deposit side of things. Can you just give us where you’re at the moment in terms of average remaining term of the back book of the term deposit books? And then at the moment, just where you’re typically writing or issuing new deposits in terms of the front book.

I suppose then that allows us to sort of think about how that volatility in the spreads passes through the NIM over time.

Andrew Leslie, CFO, Judo Capital Holdings Limited: Yes. Yes, yes. No, it’s

Matthew Wilson, Analyst, Jarden: I mean, the kind of

Andrew Leslie, CFO, Judo Capital Holdings Limited: the tenders, etcetera, are still pretty consistent in terms of remaining terms. So it’s still sitting remaining terms sitting at about that kind of eight odd month level. We because we’ve got a back book in deposits as well, obviously, versus what we’re kind of putting on the front. In terms of the levels of pricing, we are still as I called it out in my notes, we are seeing at the moment, TD rates, we look at, say, the six or the twelve month, we are seeing those rates above that 80 to 90 range for new deposits, which I’ve called out. And so that’s still that is still a little bit elevated above where we expect through the cycle.

Now that is that will be a little bit offset obviously with what’s in the back book or the existing deposit book where we are for the nine months to March still sitting in that kind of 80,000,000 to 90,000,000 range. So it will be some of the new stuff that we’re tipping in will be a bit offset by what’s already in the book. So it’s a bit of a dynamic market. There’s repricing that different players are doing through in terms of that branchless bank segment. But we’re kind of managing that across the tenants and channels that we have and our other sources of funding as well, obviously.

Nathan Lead, Analyst, Morgan Financial: Yes. So the remaining term of the back book was eight months, but what are you typically getting now with your front book? Terms of Typically twelve months or

Andrew Leslie, CFO, Judo Capital Holdings Limited: Front book, what’s the average? Look, we I mean we have a bias for longer dated TDs, and we’ve built a really good brand in those longer dated TDs because the industry tends to favor the shorter tenor. We’ve obviously brought that longer tenure to market and built a good brand there. But what typically happens in a falling rate environment is that the market, and this is the overall market, TD market tends to move shorter because those headline rates for shorter tenure tend to be tend to have higher rates. Now that ignores the ultimate cost and the swap, etcetera, but the typical retail customer looks at that higher headline rate and they might take a shorter tenure with a higher headline rate rather than locking in certainty of having a longer tenure, which might have a lower headline rate.

So the industry does actually tend to take a shorter or move towards a shorter tenor in a falling rate environment because of that dynamic. And we’ve seen that as well. We’ve probably seen and are taking a little bit more in that six months and even some of that three months than we had before. And I think also this is therefore a good reason why it’s good to have the flexibility of product with a high interest on one side of our account, which is something obviously that we’re looking at. The benefit of that in this kind of environment.

Nathan Lead, Analyst, Morgan Financial: We have

Chris Baylis, CEO, Judo Capital Holdings Limited: considerably more flexibility on this now, now the book is $9,000,000,000 As you can imagine, in the early years of judo, when the book was $1,000,000,002 3 billion dollars we wouldn’t take any risks on the liability side of the balance sheet. So we really were quite dogmatic about getting very long dated TDs. But now that the book is at $9,000,000,000 we have more flexibility to pull the shorter tenure lever if the rates are attractive there. So as Andrew said, it’s only three or four years ago that we wouldn’t have entertained during the six month TD for liquidity reasons. But now, in a different place.

And with the shape of the yield curve and consumer preferences, makes absolute sense for us to open up sort of tenures and be competitive there. And Vito sort of high interest savings accounts, call accounts, notice accounts, where you can get much better margins. Again, with a bigger balance sheet, you know, we have far more optionality there now than than we did in the early years.

Nathan Lead, Analyst, Morgan Financial: And you’re still targeting that 70% of funding coming through the TDs by the end of the financial year?

Chris Baylis, CEO, Judo Capital Holdings Limited: Yes, absolutely.

Andrew Leslie, CFO, Judo Capital Holdings Limited: Yeah. I mean, it’s we we for us, it’s the story of the of or part of the story around that funding cost is more deposits. And so that’s a that is a focus for us in driving that. The real metric for us is getting that to 75%. We could potentially do more, but that’s the journey that we’re on.

And I think, again, introducing new product there

Chris Baylis, CEO, Judo Capital Holdings Limited: bit more flexibility about how we manage towards that I mean the only disruption to that would be is if for some strange reasons, swap rates stayed where they are and TDs became more expensive than your warehouse lines. Because we, you know, our warehouse is now, you know, they’re about 120, one hundred 30 over swap, because we’ve matured significantly as a bank since they were, you know, since they were originally put in place. And when you think of the non utilization fees that are attached to some of those as well, the marginal cost of using those, if it was significantly below deposits, we might do a short term pivot there. But structurally, you’re absolutely right. We want to fund the balance sheet 70%, seventy five % of deposits.

Andrew Leslie, CFO, Judo Capital Holdings Limited: And we have done a bit of that, Nathan, just for that very reason. In the last couple of weeks, we’ve seen that dislocation. And so we might do a little bit more from warehouse. It’s the benefit of having flexibility across the funding stack.

Nathan Lead, Analyst, Morgan Financial: Yes. Great. Okay. Thank you.

: Thank you.

Conference Operator: Thank you. Your next question comes from Richard Wiles from Morgan Stanley. Please go ahead.

Chris Baylis, CEO, Judo Capital Holdings Limited0: Good afternoon. Just wanted to ask you a couple of questions about the lending rates. I think the lending rate was four point the new lending rate was 4.6% in the third quarter. Do you think it will fall from these current levels? And how should we be thinking about the blended lending rate, the new rates being 4.5% or above in, I think, or 5% of the past six or seven quarters.

So does that mean the blended lending rate should be heading above 4.5% in the first half of twenty twenty six?

Chris Baylis, CEO, Judo Capital Holdings Limited: So there’s so on the front book in terms of new originations, yes, 4.6%, four point five it’s very strong. It’s where our customer value proposition really excels. We’re faster than the competition. We structure better. We bring a better relationship proposition to transactions.

We do get a significant premium to the major banks, but I’m not seeing any real pressure on that rate. The pressure, I think, is more when the customer has been with us for two or three years, maybe the risk profile is normalized a little bit closer to where the major banks are. And with the increasing competition and the fact that the major banks have all fallen back in love with SME lending, there’s downward pressure there. And so that will always mean that the overall blended margin will be lower. I mean that was always the thesis, right?

The blended margin will be lower than your origination margin because at point of origination, you’re generally overcoming we have a much, much more a higher superior customer value proposition than the major banks. So I don’t think that dynamic is going to change materially. I mean to get to the NIM of over 3%, it’s as much about the liability side of the balance sheet as it is about the lending side. And of course, our job is to make sure that the spread between the two is optimized.

Chris Baylis, CEO, Judo Capital Holdings Limited0: Thanks, Chris. And can I ask about the term deposit rates? You’ve spent some time talking about the recent trends with the margins above the top end of that 80 to 90 basis point range that you’re targeting. Why is this happening? Who’s behaving?

Which banks which cohort of banks behaving more aggressively in the TD market and pushing these rates to these levels. We’re environment where deposit growth has been strong, the wholesale funding markets have been well behaved. So why are industry participants competing aggressively in pushing these rates above what you would expect them to be?

Andrew Leslie, CFO, Judo Capital Holdings Limited: Yes. It’s I mean the segment is the branches bank segment as we’ve talked about before. And that’s our segment and that’s the segment that we compete in. And it’s a segment with lots of names in it, lots of some big, some middle and some small. And it’s that typically the top part of that the league tables here change weekly in terms of who’s at the top.

I mean if I look at the one year today, it’s GNC, it’s Unity, it’s Southern Cross Credit, it’s Heartland Bank, it’s QDOS, it’s Australian Military Bank. And then there’s about another 10 names before you get to us. But it’s quite they’re quite kind of bunched in a band there, and does change. Who do we really compete with? I think Richard, is increasingly the names that we anchor towards are the ING and the AMP, less so Macquarie than we probably used to.

They’ve been less competitive, but it’s typically those the bigger branches banks that we compete with. But it is a market where when you’re a branches bank customer, you do go to these rate comparison sites. And we’re competitively priced, but we’re not at the top of the lead titles. We’re sitting probably about 30 basis points off at the moment in terms of that one year as an example. So but to your question, kind of who is and a bit of why, look, this is I think the nature of certainly some of the smaller banks and the newer banks competing for flow.

They come in, they take it and they drop out. And so the consistency there of the proposition, the roll rates are much lower. For us, we want to be consistent, we want to be good enough, we want to be competitive enough and we’re finding that balance and that is something that as our brand value strengthens, we’re further exploring and refining. And it’s why we’ve got rollover rates of 70%. But I think the thing for us is that all of those banks are typically home loan banks with very competitive market.

And so the sustainability of one bank to be a consistent competitor is lower than us because of our asset yield. And so that’s a big focus for us is not being too schizophrenic with those headline rates so that we can continue to earn the trust of customers and maintain those really high roll rates.

Chris Baylis, CEO, Judo Capital Holdings Limited0: So Andrew, it sounds like the branchless banks have got more competitive, that cohort has moved up on pricing, it’s not the whole market overall?

Andrew Leslie, CFO, Judo Capital Holdings Limited: Yes, probably some of them haven’t moved down, think with the market is how I would put it. Because when we’ve looked if we look over a period of time, I think we’ve put some disclosure in the previous half year and full year results on this, that branchless bank segment has typically been above the rest of the market. And the upper quartile or the top names in that has had typically been above that 80 to 90 basis points. The benefit for us is that as we’ve established ourselves in the market, we haven’t had to necessarily go to the top to get the flow that we need. So what we’ve seen, I think, of late in particular, in this particular pricing environment that we’re in right now, we’ve seen we have seen some movement.

I think we have done about two moves in the last month. Some haven’t moved that much, but the market is kind of moving down. And I would expect that as we get closer to the May cut and the eventual if we do a cut there, the market is expecting that in terms of market consensus expectations. And if we do get that rate cut, then the head then that gives a lot of this segment an opportunity to move those headline rates. And I think we’ll see start to see some of that delta between the swap and the headline rates reduce.

Conference Operator: Thank you. Your next question comes from Tom Strong from Citi. Please go ahead.

: Hi, and thanks for taking my questions. If I was just to follow on just from your last answer, when you talk about the wider T spread TD spreads in the current environment sort of being a short term impact from the volatility in swaps. I mean, if the cash rate plays out as market pricing is implying, like how long do you think it will take to restore that sort of 80 to 90 basis point spread?

Andrew Leslie, CFO, Judo Capital Holdings Limited: Look, it’s a I mean it’s a hard it’s hard to be too specific on it because it does depend on how people move. But the typical behavior here is that the retail customer doesn’t expect that headline rate to move unless the cash rate moves. And so if there is a cash rate move, that can be a bit of a trigger for people moving, and that’s the typical behavior. So we’ll some that need a bit more flow stick around a bit higher before they move potentially, But we call this out as a somewhat temporary set of conditions and how long it takes is hard to say, but the real trigger here is actually seeing what the swap rate is predicting, which is a rate cut actually come to fruition and that then becomes the reset for what is a segment where there’s a lot of retail customer behavior and expectation of movements with the cash rate.

: All right, fantastic. And just to clarify on the new lending spreads, I mean, I think they were $470,000,000 the December and now mid-400s. In the pipeline, is this a function of competition or mix of pipeline or a bit of both?

Chris Baylis, CEO, Judo Capital Holdings Limited: Mix, really. There’s not a lot on competition. As I said, we generally our value proposition point of origination is very strong. It will be mix in terms of average loan size and just yes, it will yes, it’s deal specific. It oscillates a little bit around.

But as long as we’re sort of above 4.5%, I’m happy.

: Fantastic. Thank you.

Conference Operator: Thank you. Your next question comes from Olivier Kuhn from E and P. Please go ahead.

Chris Baylis, CEO, Judo Capital Holdings Limited1: Hi, guys. Thanks for taking my question. You may have answered or missed it because and I missed it because I got kicked off the phone. But can you comment on April and what GLA did over that month? Because obviously, upper stats aren’t updated for that, but I would assume that you’ve got a pretty good idea as to what you did and therefore, the implicit kind of number that you’re guiding to for May and June is.

And then further to that, I suppose, what are your expectations that are kind of built into your FY twenty twenty six aspiration for growth?

Chris Baylis, CEO, Judo Capital Holdings Limited: I mean, we yes, John asked that question really around FY ’20 ’20 ’6, and we sort of we’re comfortable sort of guiding to that sort of $2,000,000,002,500,000,000 of growth. In terms of April, I actually, we haven’t I mean, I actually haven’t seen the numbers myself yet. You have we have as you’d expect, we have a lot of drawdowns that occur in the last couple of days of the month and then accumulated interest and what have you to go through. But we’re so no, I don’t have that number to hand. I think the guidance that we’ve given in terms of what’s important, I think, is that guidance we’ve given in terms of the June because May and June, in particular, are the busiest months of the calendar of the financial year and June in particular because of obviously the end of the tax year as well is by far our largest origination month.

So as I said, I just want to just reiterate and just put into context the fact that we downgraded the June landing position by about $350,000,000 We normally settle about $150,000,000 a week. So it is we are literally just talking about a couple of weeks’ worth of originations trying to get us there, even though it’s only eight weeks out, you could easily say, well, Christ, Chris, you should be able to know now what’s to happen in eight weeks’ time. But if something falls the wrong side of a two week window And these are complex transactions, right? They’re not just they’re not home loans. They don’t just fall off the end of the conveyor belt.

There’s properties that are being acquired. There’s conditions precedent that have to be met. There’s other there might be other funders involved in terms of being very on the discharge side. So one of the things that’s always been really difficult for our business is predicting the exact day when something’s going to settle. And you know, it is very difficult.

You know, again, I sort of on one hand feel a little bit uncomfortable giving a range and not an actual number for the June, but it’s just not the nature of our business and the types of transactions that we do.

Andrew Leslie, CFO, Judo Capital Holdings Limited: I mean, just to add, Ollie, the pipeline is big part of just to the earlier part of the question in terms of confidence for where we go for this year and $1,600,000,000 as we called out with the margin where that needs to be. So that’s a good confidence point for us. And then I guess just to put things a little bit into perspective, as Chris said, it’s the run into June is the big one for us. And if we look at net book growth last year, just to give you because it is a bit seasonal, Net book growth in Q3 was 140 odd mills, so pretty smallish in comparison to the overall book. But then it’s Q4 is the big it’s the final quarter, a bit like a competitive footy game because that is where we did over $860,000,000 of net growth in for last year.

So it is quite cyclical as I called out, that start of the year is always a bit subdued. So I think that’s that’s part of where we get to in terms of how we look at our loan book trajectory over the next little while.

Conference Operator: Thank you. Your next question comes from James Ayres from the Australian Financial Review. Please go ahead.

Chris Baylis, CEO, Judo Capital Holdings Limited2: Hi, Chris. Hi, Andrew. I was just going to ask about a process for getting this update out today. Street talk, the Finn Andrews just sort of talking about a presentation you did at one of the investment banks in Melbourne on Tuesday. There are a few notes in the market pointing to an update you’re going to be doing at Macquarie next week.

We have this 6.5% fall in the stock price this morning, a one hour halt, an update and the stock sort of finishing 17% down. So it sort of looks pretty messy. And I was just wondering if you could explain whether or you think these updates to some investors have had anything to do with where the shares have ended today?

Chris Baylis, CEO, Judo Capital Holdings Limited: No, I don’t think it’s anything to do with those updates. I mean, you’re right, we’re at the Macquarie Conference next week. We always planned on doing a trading update. Our Board was scheduled for today, and then that’s been in the calendar for the last twelve months, which is when we were taking the board through the latest landing position for the June. I think, James, the Apple stats came out yesterday, so or the day before yesterday.

So that’s when obviously we are a bank that only lends money effectively. And so the APRA stats give the market an insight into what happened to the book in March. So I think there was perhaps some anticipation that when you do the math between what those stats were showing at the March and where we were guiding the market to sort of between 12,700,000,000.0 and $13,000,000,000 that there was probably some expectation that that was going to come off slightly. But no, we’d always planned to give a trading update as soon as our

Chris Baylis, CEO, Judo Capital Holdings Limited2: And had you planned to sort of do that in the middle of the trading day today? I mean, should that have not been done pre market and why the sort of halt before that came out?

Chris Baylis, CEO, Judo Capital Holdings Limited: No, we were planning on doing it tomorrow morning. And then but we had our board meeting this afternoon and given we just decided to get it out this afternoon.

Chris Baylis, CEO, Judo Capital Holdings Limited2: Sure. Okay. Thank you.

Conference Operator: Thank you. There are no further questions at this time. I’ll now hand back to Mr. Baylis for closing remarks.

Chris Baylis, CEO, Judo Capital Holdings Limited: Okay. Well, thank you. We always enjoy depth of the questions that we get. And it was we appreciated everyone dialing on this afternoon to hear our trading update. And so again, you for your attendance and we’ll chat soon.

And for those of you that are at the conference next week, we’ll see you there. Thank

Conference Operator: you. That does conclude our conference for today. Thank you for participating. You may now disconnect.

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