It has been a tough few weeks for Johns Lyng Group Ltd (ASX: JLG) shares.
Since this time last month, the ASX 200 share has lost over 30% of its value.
Investors sold off the insurance building and restoration services company's shares late last month in response to the release of a disappointing full year result.
Johns Lyng reported a 9.6% decline in revenue to $1.16 billion and an 8.5% lift in EBITDA to $129.6 million. This was short of its guidance for revenue of $1.2 billion and EBITDA of $136.4 million.
Adding to the disappointment was management forecasting further declines in revenue and EBITDA in FY 2025.
The good news is that one leading broker believes its shares have bottomed now and is urging investors to pick them up while they are down.
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ASX 200 share to rebound
According to a note out of Morgans, its analysts have an add rating and $5.10 price target on John Lyng's shares. Based on its current share price of $3.72, this implies potential upside of 37% for investors over the next 12 months.
In addition, the broker expects a modest 2.1% dividend yield in FY 2025 and then a 2.4% dividend yield in FY 2026.
Overall, that's a total potential 12-month return close to 40% for investors that buy this ASX 200 share at current levels.
What did the broker say?
Morgans notes that Johns Lyng has announced a deal to acquire a large stake in Keystone Group.
It is one of Australia's leading Insurance Building & Restoration Services (IB&RS) businesses. Keystone services a recurring blue-chip customer base providing insurance repairs, restoration and hazardous material removal through its subsidiaries, Rizon, Remeed, and Corvex.
Morgans is a fan of the transaction and highlights that it will provide further scale to its domestic operations and increased exposure to commercial and large loss claims work. Commenting on the deal, it said:
JLG has announced that it will extend its domestic Insurance Building and restoration presence via the acquisition of ~87.5% interest in Keystone Group for an upfront consideration of $47.7m and an earnout of up to $21.4m over FY25/26. We see Keystone as highly complementary to JLG's existing IB&RS business, which provides further scale to the group's domestic operations (particularly within QLD) as well as increased exposure to commercial and large loss claims work. Incorporating Keystone into our forecasts see our EBITDA upgraded by ~7% in FY25-27F, while increased level of debt to fund Keystone (and SSKB & Chill-rite), sees our EPS forecasts increase ~4%. Our Add rating is retained with a $5.10 PT.
