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JULIUS BERGER NIGERIA PLC FY'16 - FX losses derail FY’16 earnings

• JBERGER reported FY’16 loss-after-tax of ₦3.8 billion following a massive hit from FX acquisition costs in tune of ₦14.2 billion for the year. The reported loss-after-tax was however better than our ₦5.1 billion loss expectation following a stronger than expected Q4 operating performance. As expected, the Q4 revenue (₦44.7 billion) was sustained around Q3 level (₦46.5 billion) amidst higher FG CAPEX releases in the second half of 2016, bringing FY’16 revenue to ₦139.0 billion, up 4% y/y. We also note the impressive efficiency recorded in the quarter as EBIT margin improved to 15% (Vetiva: 8%). On the strength of this, FY’16 EBIT rose 46% y/y to ₦18.2 billion, 26% ahead of our estimate. Nonetheless, FY’16 bottom line came in negative following the huge ₦19.7 billion Net Interest and FX related Costs.
• Whilst we foresee a flat operating profit growth for FY’17, we highlight that bottom line recovery is hinged on the extent to which FX related losses accumulate over the course of 2017. For clarity, the FY’16 FX acquisition costs arose from sourcing of FX from parallel market amidst the tight liquidity in the official FX market. However, amidst successive CBN interventions in the FX market since February, the naira has garnered some strength over the last month, currently exchanging at NGN380/USD as at time of writing. More importantly, improved liquidity at the official market would mean less reliance on the parallel market. Given our expectation of a stronger, we expect FX acquisition cost to remain contained this year. We believe JBERGER would return to profit in FY’17. After updating our model, we revise our target price to ₦32.38 (Previous ₦26.66).