- Strong Q4 earnings drive FY’19 outperformance
- Finance costs to moderate on the supportive interest rate environment
- TP revised higher to ₦38.56, BUY rating reaffirmed
Impressive Q4 buoys FY’19 results
In line with the recent rash of unexpected announcements, Julius Berger released an unaudited copy of its FY’19 results, reporting an impressive 70% y/y jump in Net profit to ₦10.3 billion, beating our ₦7.2 billion expectation.
The positive earnings surprise for FY’19 was driven by an impressive Q4’19 result, which showcased a 121% y/y jump in Net profit to ₦5.2 billion (c.50% of FY’19 profit). While the unaudited results contain no dividend announcements, we expect a dividend payout of c.38%, amounting to a ₦3.03/share dividend (FY’18: ₦2.00) and a c.14% dividend yield.
While we had anticipated weakened topline in Q4’19, following news reports on civil disturbances slowing down work on the second Niger bridge project, Revenue still rose 20% q/q to ₦72.3 billion in Q4’19 (Q4’18: ₦74.8 billion), taking FY’19 Revenue 37% higher y/y to ₦264.6 billion (Vetiva: ₦249.1 billion). Revenue growth continues to be driven by the public and private sectors, with the public sector still accounting for the bulk of revenue (71% of FY’19 topline).
Furthermore, JBERGER recorded improved efficiency in FY’19, with operating margin improving by 30bps y/y to 7.8%. In absolute terms, EBIT rose 43% y/y to ₦20.6 billion (Vetiva: ₦16.1 billion). Meanwhile, in spite of a 40% moderation on debt obligations in the year and a more supportive interest rate environment, Net finance charges rose 33% y/y to ₦5.9 billion, taking PBT 48% higher y/y to ₦14.7 billion.
A more optimistic outlook
Building on our improved outlook for public spending in 2020 – following a largely uninspired CAPEX rollout in 2019 – we maintain a positive outlook for the construction sector this year. We are also optimistic about JBERGER’s operations given its strong contract portfolio as well as close relationships with the FG and several state governments. We note that after five years of scaling down operations (PPE dropped 40% between 2014 and 2018), the construction giant resumed investing in PPE (FY’18: ₦41.3 billion, FY’19: ₦58.1 billion) in 2019, signaling improved confidence in the market. To that end, we forecast a 15% y/y growth in topline to ₦304.2 billion (Previous: ₦274 billion). With no significant change expected in the operating environment, we maintain our operating margin expectations. Thus, we forecast a 16% y/y rise in EBIT to ₦24.0 billion (Previous: ₦21.8 billion). Worthy of note is the improvement in JBERGER’s cash position in FY’19. Supported by an increase in receipts from customers, JBERGER returned to a positive cashflow in 2019. Given the improved cash position as well as a supportive interest rate environment, we expect a moderation in Net finance charges to ₦4.3 billion in FY’20 (Previous: 6.8 billion). Overall, after adjusting for tax expenses, we arrive at an improved FY’20 PAT of ₦13.4 billion (Previous: ₦10.2 billion) and a 12-month Target Price of ₦38.56. We place a BUY rating on the stock.