This past week’s floods have been labelled a "one-in-100-year" event. We believe one of our portfolio holdings, Johns Lyng (JLG), is well placed to service the victims of this catastrophe, whilst also showcasing its value proposition to insurer customers.
JLG is an integrated building services group delivering 3 main services:
Building & Restoration Services;
Commercial Building Services; and
JLG’s Building & Restoration business is a clear market leader in the rebuilding and restoration of properties after damage from insured events including impact, weather and fire events. In short, after any flood, cyclone or bushfire, JLG collects orders from insurance companies and insurance brokers and promptly responds to damage.
With 5x the revenues of its next largest competitor, only JLG has the management culture, software systems and geographical breadth to quickly mobilise enough workers to address the inevitable “flood” of work that comes in the aftermath of a weather disaster.
The table below shows the weather-related catastrophes that have beset Australia over the past 5 years:
How do this week’s floods compare with previous disasters?
While the scale of the damage from these recent floods is too early to quantify, it is likely to be significant.
A look back at the 2019 Townsville floods provides us clues as to the scale of work that JLG performs in response to a “typical” catastrophe.
During the Townsville Floods from 23 January to 7 February 2019, 200,000 people were affected, leading to 30,000 insurance claims and 3,300 properties damaged. The total insurance cost was $1.24 billion.
As of late March, 300,000 people have been impacted by this past week’s floods. There have been 12,000 insurance claims to-date and that number is expected to increase. The insurance cost is estimated to exceed $1 billion.
While JLG did not disclose the specific revenue and profit earned from remediating the impact of the 2019 Townsville floods, we estimate that particular event resulted in around $50m of Catastrophe revenue on top of JLG’s Business As Usual work. We think it is reasonable to assume that this week’s floods should end up in a similar ballpark range.
If these catastrophic events continue to occur with increasing regularity, JLG looks well placed to highlight its key competitive advantage in the eyes of insurance companies and insurance brokers – having the scale and geographical breadth to respond promptly to calls for help during particularly trying times.
Till next week, happy investing,
Michael and Kenny