A small company with a wide moat

Johns Lyng Group (ASX:JLG) is an integrated building services company, providing building and restoration services as well as commercial building services throughout Australia. The majority of group earnings are generated through the Insurance Building and Restoration division.

Following an insurable event (fire, flood, impact damage etc), JLG will be on site within the hour and will ensure that the site is safe. JLG are also responsible for contents restoration where they take damaged items such as tables and chairs to their warehouse and repair them.

JLG manages over 5,000 contractors, allowing them to ramp up operations when demand peaks, which is especially useful during large scale insurable events. Many of the smaller players in the market lack this scale. The company has invested in regional areas where few competitors operate, which provides JLG with national reach and acts as a competitive advantage. In addition, JLG have long standing relationships with insurers, placing them in a strong position to win work.

The business has grown organically over the past 14 years, with only a small contribution from acquisitions. We expect JLG will continue to generate solid organic growth as they expand geographically and deepened their relationships with insurers and loss adjusters.

The number of regular insurable events each year is fairly stable and unrelated to the state of the economy and other cyclical factors. We are attracted to the defensive nature of the business, management’s significant shareholding, and also JLG’s strong balance sheet.