EUR 53.02 For Business Accounts Only

JULIUS BERGER NIGERIA PLC - FX related costs bite harder on earnings

JBERGER reported a 94% y/y drop in H1’16 PAT to N136 million after FX pressure took a heavier toll on earnings in Q2. The 3-month period alone generated a loss-after-tax of N114 million, impaired by FX related charges of N4.1 billion (Q1: N3.0 billion). The Q2 loss overshadowed improved EBIT during the quarter. At 16%, Q2 EBIT margin is the highest our records show. Key factors behind the record margin are moderation in Cost of Sales (Q2:73%, Q1:75%), profit from sales of some fixed assets (N458 million), and the continued impact of the cost cutting initiatives by management with Admin expenses down 30% q/q. We recall that JBERGER effected a 39% downsizing in staff over the course of FY’15, and believe this would have played a part in keeping OPEX in check.

We think it would be quite tough for JEBERGER to meet our revenue estimate for the year following the weak H1’16 performance. As such, we revise our FY’16 revenue to N113.7 billion (Previous: N137.8 billion). After adjusting our model to incorporate other views including management’s strong hold on OPEX, we cut our FY’16 PAT estimate to N0.7 billion (Previous: N2.7 billion), to be largely weighed down by FY’16 Net finance charges (FX-related charges and interest on overdraft) which we estimate at N11.5billion (H1’16: N7.1 billion). Our target price has also been revised downwards to N28.65 (Previous: N29.73). We maintain a SELL recommendation 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.