Goldman Sachs has kept its “buy” rating on property services group Johns Lyng and lifted its target price on the company due to an expected increase in catastrophic (CAT) event work driven by the recent floods in Queensland and NSW.
The broker’s forecast for financial year 2022 revenue remains unchanged, given it had already factored in $130 million of revenue with the expectation that future CAT events would occur through the season.
However, given the scale of the floods on the east coast, Goldman revised its FY23 and FY24 CAT revenue forecasts to $150 million a year, from $100 million a year and $75 million a year respectively.
“We expect a long tail of work to continue over the forecast period,” said Michael Peet, equities analyst at Goldman Sachs.
The broker also upgraded its long-term CAT revenue assumptions to $100 million a year, from $75 million previously. This is slightly above the longer-term average of $92 million a year between FY17 and FY24.
Analysts said the higher forecasts were justified given Johns Lyng had grown its market share of insurance restoration, and geographic diversity provided the company with greater exposure to CAT events across the country.
Additionally, Johns Lyng is positioned to benefit from an expected increase in the frequency and severity of CAT events based on recent history as well as the latest Intergovernmental Panel on Climate Change report, which suggests an increase in heavy precipitation and flood events.
Goldman Sachs increased its target price on Johns Lyng by 26 per cent, from $9 to $11.35. With this offering about 30 per cent upside from its current share price of $8.59, the broker retained its “buy” rating on the company.
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