Johns Lyng pares losses as investors weigh up Keystone Group acquisition
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More news: Johns Lyng Group pared early losses on the ASX after the building services provider announced the acquisition of a majority interest in Queensland insurance building and restoration services business Keystone Group.
Johns Lyng shares were down 0.3% to $3.44 by 1:45pm AEST, having fallen as low as $3.39 at the start of trading.
What they said: "The acquisition makes sense in terms of bolstering [insurance building and restoration services] geographical footprint and capacity, which is crucial in ensuring [Johns Lyng] is well placed to deliver services promptly with little or no undue delay," Citi analysts said.
"Despite this, we think this is not sufficient to erase concerns around organic BAU growth profile especially in Australia as well as potential downside risk from recent scrutiny on practices within the strata management industry as a whole (i.e., related-party disclosure and commission/hidden fees)," they said.
Johns Lyng to acquire majority stake in Keystone Group for $69m
The news: Building services provider Johns Lyng Group says it is acquiring majority interest in Queensland-based insurance building and restoration services business Keystone Group.
The numbers: The company will pay an upfront consideration of $44.1 million plus 3.6 million in fully paid Johns Lyng shares on completion of the deal. In addition, it will pay an aggregate earn out of up to $21.4 million contingent on FY25 and FY26 earnings thresholds being achieved by Keystone.
Johns Lyng said it will initially acquire 87.5% stake in Keystone, with the balance retained by management. It will subsequently sell a 7.5% stake to management post-completion to ensure ongoing strategic alignment. The acquisition is expected to be immediately earnings accretive.
Shares in the company were 1.2% lower at $3.41 in early trading on the ASX.
The context: Johns Lyng said Keystone has developed a significant commercial insurance arm which is highly complementary to its offerings, and the acquisition would strengthen its insurance building and restoration services strategic growth pillar which provides predictable and recurring baseline revenue through everyday insurance events.
The latest acquisition follows the purchase of strata management company SSKB Strata and air conditioning specialists Chill-Rite HVAC for a total consideration of $57.6 million. The company said both those deals will be completed in the first quarter of FY25. Last month, the company missed its full-year revenue guidance, prompting analysts to cut their price targets on its shares.
The source: ASX announcement
