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JULIUS BERGER NIGERIA PLC FY'17 - One-off incomes buoy return to profitability

One-off incomes buoy return to profitability                                                                    

Coming from a loss of ₦2.4 billion in prior year, JBERGER reported PAT of ₦2.6 billion (Vetiva: ₦0.6 billion) for FY’17, translating to an EPS of ₦3.61. In line with our estimate, the Board of Directors declared a dividend of ₦0.25 per share. Despite the bottom-line outperformance, underlying earnings for the full year period remain relatively weak as PAT was largely supported by extraordinary income from profit on sale of fixed assets. Particularly, weighed by slow traction in construction sector, FY’17 revenue remained flat y/y at ₦141.9 billion – missing our ₦148.7 billion estimate. On a positive note however, FX losses declined 77% y/y to ₦3.3 billion supported by relative currency stability in 2017. Also, worthy of note is the improvement in JBERGER’s cash position, driven by improved receivables (receipt from customers totaled ₦111 billion) in Q4’17 – resulting in a positive cashflow from operations for the first time since Q1’16.                                                                               

Whilst we maintain our positive outlook for the construction sector on the back of increased FG spending, we are more cautious on JBERGER given recent indications that the company is scaling back its operations. We note that fixed assets have declined from ₦67 billion in FY’14 to ₦42 billion in FY’17, and head count has been trimmed from 17,829 to 8,625 over the same period. As such, we lower our FY’18 topline estimate to ₦146 billion from ₦164 billion, translating to a mild 3% y/y growth. Overall, our FY’18 PAT forecast is revised to ₦2.8 billion (Previous: ₦3.5 billion) but our target price is relatively unchanged ₦27.90 at (Previous: ₦27.72) largely on the back of strong improvement in cash position and lower risk-free rate assumption.                                                                     

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.