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JULIUS BERGER NIGERIA PLC 9M'17 Earnings - Topline recovery sustained; Profit expected in FY

Topline recovery sustained; Profit expected in FY                                                                          

JBERGER reported a mild profit (Q3’17 PAT: ₦16 million; Q2’17: ₦72 million) for the second consecutive quarter as the construction company continues to recover from its recent earnings slump; FY’16 LAT at ₦3.8 billion, Q1’17 LAT at ₦0.4 billion. Supported by the modest recovery in Q3’17, 9M’17 bottom line came in at a ₦350 million loss, better than Vetiva LAT estimate of ₦454 million and a significant improvement from 9M’16 LAT of ₦3.3 billion. Whilst the modest bottom line surpassed Vetiva expectation, topline (₦105 billion) and gross profit (₦27 billion) printed below our estimates of ₦109 billion and ₦28 billion, albeit 12% and 9% higher y/y respectively. Despite the miss, 9M’17 EBIT (₦7 billion) came in ahead of our ₦5 billion estimate – supported by lower-than-expected Operating Expenses (9M’17: ₦23 billion vs. Vetiva estimate: ₦25 billion).                                                                        

We anticipate a stronger top line run rate in the last quarter of the year as the Federal Government (accounts for significant portion of revenue) further ramps up its capital expenditure supported by the recent release of the ₦100 billion Sukuk proceeds for road projects. Hence, despite the revenue miss in 9M’17, we maintain our FY’17 revenue estimate at ₦149 billion. In line with the contained Operating Expense observed in Q3’17 (OPEX as % of sales: 21% vs Q2’17: 25%), we cut our Q4’17 estimate to reflect the Q3 run rate and forecast an OPEX of ₦30 billion (Previous: ₦33 billion). We however expect finance cost to remain elevated. Overall, we revise our bottom line forecast for FY’17 to ₦648 million profit (Previous: ₦1.4 billion loss) – supported by a ₦998 million profit expectation for Q4’17 standalone. Our target price is raised slightly to ₦24.91 (Previous: ₦24.79). We maintain a SELL on the stock.