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PAT outperforms estimate albeit underlying earnings remain weak
Coming from a loss of N2.4 billion in prior year, Julius Berger reported profit after tax (PAT) of N2.6 billion (Vetiva: N0.6 billion) for FY’17, translating to an Earnings Per Share (EPS) of N3.61.
In line with our estimate, the Board of Directors declared a dividend of N0.25 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 N141.9 billion – missing our N148.7 billion estimate.
However, amidst the impact of persistent inflationary pressure on operating expense, operating income declined 48% y/y to N8.7 billion – albeit better than our N7.8 billion estimate. Similarly, on the back of higher liquidity need (dependence on overdrafts) as well as elevated interest rate environment, Net financing expense rose 24% y/y to N6.8 billion. On a positive note however, FX losses declined 77% y/y to N3.3 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 N111 billion) in Q4’17 – resulting in a positive cashflow from operations for the first time since Q1’16.
Cautious outlook on JBERGER, FY’18 estimates revised lower
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 N67 billion in FY’14 to N42 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 N146 billion from N164 billion, translating to a mild 3% y/y growth. Maintaining our cost run rate, we cut our FY’18 EBIT estimate to N9.1 billion (Previous: N10.6 billion).
Also, we revise our net finance cost forecast lower to N4.9 billion (Previous: N5.6 billion) as we foresee reduced need for overdraft and lower interest rate expectation in the coming quarters following improved receivable earlier highlighted.
Overall, our FY’18 PAT forecast is revised to N2.8 billion (Previous: N3.5 billion) but our target price is relatively unchanged N27.90 at (Previous: N27.72) 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.
