Judo Capital Holdings (JDO) - Thrown to the mat

Judo Capital is a bank focused on lending to small- to medium-sized enterprises (SMEs). Judo Capital (JDO) cut its guidance for FY26 profit before tax by 9–11%, blaming increased bad and doubtful debt provisions related to three borrowers in different sectors, leading a shocked market to slash its share price by more than 40% on the day. The lender to small- to medium-sized enterprises (SME) said the need to increase its specific provisions – related to a construction company, a financial planning business and window manufacturer – had only become apparent in recent weeks.

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The speed at which conditions for these three specific exposures deteriorated – none were on a watch list – is a significant concern for Ord Minnett and the broader market, raising questions as to just how rigorous and reliable Judo’s monitoring processes are, not to mention management’s credibility. We also highlight the large size of these particular loans – the combined exposure for Judo is $80 million, versus its average SME loan size of around $3 million – and question why Judo was making such large individual loans.

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Post the trading update, we have cut our EPS estimates by 9.4%, 19.6% and 7.6% for FY26, FY27 and FY28, respectively, which drives a steep downgrade of our target price to $1.60 from $2.40. We also cut our recommendation on Judo to Hold from Buy despite the apparent value on offer, given uncertainty around the company’s processes and the time it will take for management to rebuild market confidence.