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JULIUS BERGER NIGERIA PLC - Improved Optimism On Stronger Q2 Performance

Improved optimism on stronger Q2 performance                                                                           

Julius Berger recently released its H1’18 results, reporting a bottom line of ₦2.6 billion, a significant turnaround from the ₦0.4 billion loss in H1’17 and much higher than our ₦1.0 billion expectation. Revenue came in 5% higher y/y at ₦73.1 billion (Vetiva: ₦71.9 billion), supported by higher earnings from Government (up 5% y/y and 10% q/q) and Private contracts (up 27% y/y but down 2% q/q). We recall that JBERGER recently announced a healthy contract portfolio, estimated at c.₦650 billion as well as an order backlog, well over c.₦100 billion. Operating profit also rose 36% y/y to ₦1.8 billion (Vetiva: ₦2.0 billion loss), supported by the higher topline and a 98bps y/y reduction in operating costs as a % of sales. Furthermore, boosted by Other Income (arising from the FX gain recorded in Q1’18), EBIT doubled y/y to ₦6.6 billion in H1’18, beating our ₦4.4 billion estimate. Meanwhile, with JBERGER still dependent on short-term financing, finance cost remained elevated at ₦2.6 billion (H1’17: ₦0.4 billion). FX acquisition losses however dropped 95% y/y to ₦0.1 billion, supported by the relatively stable exchange rate environment. Overall, Profit before tax came in at ₦3.9 billion, much higher than the ₦55.8 million in H1’17 and our ₦1.3 billion expectation.                                                                                

We have revised our estimates to reflect the better than expected performance in H1’18. We maintain our positive outlook on the construction sector, driven by anticipated election spending. Hence, we revise our topline estimate higher to ₦149.0 billion (Previous: ₦145.2 billion) to account for the revenue beat. Furthermore, we raise our EBIT estimate higher to ₦15.2 billion (Previous: ₦8.6 billion) – supported by the cost containment so far. After adjusting for interest and tax, our FY’18 PAT is raised to ₦6.6 billion (Previous: ₦1.7 billion) and our target price raised to ₦29.26 (Previous: ₦25.27). With a current market price of ₦25.00, we place a BUY rating on JBERGER.                                                                   

Julius Berger Nigeria PLC (JBERGER) is a leading construction company engaged in the planning and construction of civil engineering works in Nigeria and a foremost contractor to Nigerian Governments. It operates through three segments: Civil Works, Building Works, and Services. The company was founded in 1965 and is headquartered in Abuja, Nigeria.