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JULIUS BERGER NIGERIA PLC Q1'18 - Q1 Earnings flattered by one-off income

Q1 Earnings flattered by one-off income                                                                             

JBERGER recently released its Q1’18 result, reporting a PAT of ₦1.5 billion – a significant improvement from the ₦427 million loss recorded in Q1’17 and ahead of our ₦767 million estimate. We note that whilst PAT came in stronger y/y, operating performance was weak as the bottom line was flattered by one-off income. Revenue rose 3% y/y to ₦35 billion, albeit lower than our estimate of ₦38 billion. Notably, we had expected increased government spending to support topline growth in 2018. However, Revenue from government contracts was flat y/y, with the mild top line growth driven by a 9% y/y rise in private sector. Furthermore, amidst persistent inflationary pressures, operating costs (cost of sales + operating expenses) rose 15% y/y and 6% ahead of our estimates, leading to an operating loss in the quarter (₦2.5 billion loss).                                                                           

Whilst we retain our positive outlook for the construction sector, on the back of increased FG spending, we however revise our topline estimate lower to ₦145.2 billion (Previous: ₦146.1 billion) to reflect the lower sales in Q1’18. Meanwhile, we reduce our FY Operating profit estimate to ₦2.2 billion (Previous: ₦9.1 billion) and our EBIT estimate to ₦8.6 billion (Previous: ₦9.1 billion) after adjusting our cost estimates higher and recognizing the extraordinary income received in Q1’18. Furthermore, we raise our FY Interest expense forecast to ₦6.1 billion (Previous: ₦5 billion) to reflect higher borrowings in Q1. After updating our model, we forecast a PAT of ₦1.7 billion (Previous: ₦2.8 billion) and revise our target price to ₦25.27 (Previous: ₦27.90).