Judo Capital Holdings CEO Joseph Healy recalls doing 12 straight hours of investor meetings on Zoom in the lead-up to the company’s listing on ASX in November 2021.

Although repeating the same IPO pitch over might bore some CEOs, Healy believes consistency is a hallmark of Judo (ASX: JDO) since its 2016 launch.

This fast growth explains why Judo listed on ASX two years earlier than expected. The company’s plan at launch was to list in 2023.

In initial business planning, Judo said it needed to raise $1.5 billion over five years to become a force in Australian banking for small and medium-sized enterprises (SMEs). Of that, $1.2 billion was raised in private-capital markets; Judo left the rest for an IPO.

“There was a view that Judo could have stayed privately owned for longer - and come to market with a higher valuation,” says Healy. “But the time was right for Judo to list on ASX given the improving outlook for SME businesses and credit demand after Covid.”

Capital-raising benefits

Healy says the ASX listing gives Judo greater funding flexibility. “Private capital markets were good for Judo and we built a strong shareholder base. However, raising capital privately is at least a three-month process and can be quite a distraction for management.”

Public markets better suit Judo at this stage of its growth, says Healy. “While we have no current plans to raise additional capital, we have many opportunities to grow organically or possibly through acquisition if the right deal comes along. An ASX listing enhances our ability to raise capital quickly if needed. That’s critical at our stage of growth.”

Investor-relations issues also influenced Judo’s decision to list. “We felt Judo had a good story to tell and that fund managers wanted more investment options in the banking sector. There hasn’t been a new listing of a local bank for 25 years in Australia and the sector doesn’t have a strong growth stock (in the mid-cap space). Most banks are large-cap, mature, dividend-payers.”

Healy says the ASX listing raises Judo’s profile and aids its regulation. “It’s fair to say that regulators prefer banks to be listed so that we have that extra layer of compliance, governance, and market scrutiny that comes with being an ASX-listed company.”

The listing will help attract senior talent to Judo, says Healy. “I strongly believe management needs to be incentivised with equity in the business so that their interests are aligned with investors. It’s easier to recruit top people when you can provide equity incentives, which are more attractive when the company is listed.”

Healy says Judo only considered listing on ASX. “We’re an Australian company serving a local market so an ASX listing was the obvious choice. ASX was great to deal with on the listing aspects of the IPO.”

Successful listing

Judo raised $657 million through its IPO, capitalising it at $2.3 billion upon listing. That made Judo one the largest IPOs on ASX in 2021 – and a prominent addition to Australia’s listed fintech sector. Judo’s success could encourage other fintechs to list.

Healy says there was almost $2 billion of demand for Judo’s IPO from investors. Of the $657 million raised, about $300 million provided fresh capital for Judo to grow. The rest met a selldown from its existing investors during the IPO.

Institutions comprised about 90% of Judo’s share register upon listing. Domestic investors own about 60-65% of Judo; the rest is held by foreigners.

Judo’s high ownership by funds creates stock-liquidity challenges. Many of the company’s institutional investors are longstanding shareholders. Their Judo shares are escrowed until August 2022, meaning they cannot sell until then, should they choose to.

Healy says any potential selling could provide an opportunity for new funds to join Judo’s share register, thus improving its free float and potential for index inclusion. Judo would be eligible for inclusion in the S&P/ASX 200 index based on its current market capitalisation, assuming it meets the index’s minimum liquidity test.

Index inclusion would expose Judo to local and international passive index funds – and to active managers that benchmark their performance against the ASX 200 index.

Judo plans to attract more retail shareholders this year through investor relations (IR) activities. Before listing, Judo appointed Andrew Dempster as its inaugural General Manager of Investor Relations. Dempster was previously Head of Investor Relations at Suncorp Group.

Judo has several investor presentations organised for the first quarter of 2022 and will conduct an overseas roadshow in the second quarter, Covid permitting. Healy hopes to present at ASX investor conferences and says Judo will use virtual investor days to inform shareholders. A monthly loan-book update is another part of its IR strategy.

Four of Australia’s top investment banks have begun research coverage of Judo and Healy expects a few other firms to join them in the New Year. Finding a comparable company for analysts to value Judo against has been the biggest challenge.

“One of the frustrations we heard for investors in the lead-up to the IPO was the lack of companies to value Judo against,” says Healy. “I keep telling investors that Judo is unique; there’s no other company like us in the world.”

Analysts are so far valuing Judo on traditional banking metrics. “I’m comfortable with that approach,” says Healy. “I prefer Judo to be valued conservatively using common banking valuation parameters, rather than with more aggressive tech-style metrics.”

More fintech listings

Healy expects more fintech companies to list on ASX in the next few years. “I hope we see a lot of fintech listings and a maturing of the listed fintech space. There’s a huge opportunity for financial disruption in Australia, as there is overseas. This trend has a long way to run. Investors will become more comfortable with fintech investments.”

Having a clear capital roadmap over five years is the key to a successful listing for fintechs, says Healy. “I see some fintechs raise $10 million or $15 million through an IPO, then unexpectedly come back in six months trying to raise more money. Fintechs can expose themselves to risk by not raising enough capital at the start.”

Fintechs with listing aspirations need a sustainable competitive advantage. “The market needs to understand what problem you are trying to solve, why it hasn’t been solved already, and why your organisation is uniquely positioned to deliver the solution,” says Healey. “And that the business can rapidly scale as it implements the solution.”

Healy’s third ‘must-have’ for fintechs is strong management. “You need to lay the foundations for the organisation you want upfront. If you want a 10-bedroom house, don’t build a two-bedroom house at the start and add a bedroom as you go. Get the right people and raise enough capital to build the company you want for the long term.”

For Healy, Judo’s ‘must-have’ is consistency. “Companies that have a clear and consistent strategy, and do what they say they will do, build credibility with investors. There are fewer surprises and usually more support if something goes wrong.”

Healy laughs when asked what it was like giving mostly the same investor presentation more than 60 times during Judo’s IPO. But there’s also a hint of pride that the company’s strategy when it was a fledgling challenger bank hasn’t changed much – even though Judo is now a multi-billion-dollar ASX-listed company and a new force in SME banking in Australia.