- The shortage of rental properties on the market is the most acute in generations.
- Post-COVID, the washout of underwater builders and the weight of interest rates has dwindled new home approvals.
- Here we profile two companies involved in building and insurance likely to benefit from the current economic fundamentals.
Massive post-COVID inflation of imported materials and shipping sent many builders under, and higher interest rates have reduced new building approvals. The washout is an extremely tight rental, robust renovations and building modifications market. Many focus on renewing existing builds over greenfield construction, higher premiums, and interest income with higher rates. In this article, we profile two companies aligned with the construction industry that are likely to benefit from the present macroeconomic conditions in Australia.
Johns Lyng Group ASX:JLG (JLG)
Johns Lyng Group (JLG) is a diversified services company that provides a range of services to the insurance and construction industries. The company’s offerings include building, restoration, construction, and roofing services.
At least 20 large construction companies folded in 2022. More closures are expected in 2023. Contractually agreed rates were not enough to offset the sharp rises in prices and wages following COVID, sending many to the wall.
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JLG’s focus on shorter-duration projects in the renovation and reconstruction sector has shielded its balance sheet from the worst price hikes.
US expansion via their purchase of Reconstruction Experts Inc in 2022 has provided an additional revenue footprint in hot markets. The debt to assets ratio is slightly higher at 7.5% as of year-end 2022 versus 5.4% on 30 June 2022.
The company has a strong track record of delivering solid financial results. In 2021, it reported a 27% increase in revenue. In 2022 JLG followed up with 57%, boosted by the purchase of Reconstruction Experts Inc.
JLG has a highly experienced management team with a proven track record of successfully growing and managing businesses. The team has demonstrated the ability to execute its growth strategy while maintaining strong financial discipline.
In conclusion, JLG’s strong financial results, opportunities for growth through acquisitions, relatively recession-resistant industries, and paid dividends make this stock a solid foundation for any portfolio.
Source: Yahoo! Finance
The Steadfast Group ASX:SDF (SDF)
Steadfast Group (SDF) is one of the largest insurance broker networks in Australia and New Zealand, offering a range of insurance products and services to businesses and individuals.
SDF has a strong track record of delivering solid financial results. In 2021, the company reported a 6% increase in revenue, demonstrating its ability to generate consistent revenue growth. 2022 saw revenues increase by 20%, and the present trailing twelve-month has a climb of 9% in revenues.
SDF operates in a highly fragmented market, which provides the company with ample opportunities for growth through acquisitions. Its history of successful acquisitions has allowed the company to expand its customer base and geographical reach.
SDF operates in a sector that is relatively recession resistant. Insurance is an essential industry that is unlikely to be significantly impacted by economic downturns. Rising interest rates provide an opportunity for higher returns on their collected premiums.
SDF’s strong financial results, opportunities for growth through acquisitions, relatively recession-resistant industry, robust regulatory environment, and experienced management team make it an attractive investment opportunity.
Source: Yahoo! Finance