Julius Berger Nigeria Plc


Company Overview
JBERGER, a famed construction company in Nigeria, was incorporated on February 18, 1970.  It constructs infrastructures and buildings, and provides services such as facility management. The company is vertically integrated to handle projects from planning to construction, maintenance and management. Julius Berger International GmbH (Germany), a wholly-owned subsidiary of JBERGER, provides planning and design services. Abumet Nigeria Limited manufactures aluminium, steel and iron products. Julius Berger Services Nigeria Limited is in charge of port services.

In 2016, Mr. Mutiu Sunmonu and Engineer Wolfgang Goetsch assumed office as chairman and managing director respectively. Goldstone Estates Limited controls 19.9% of the company while Bilfinger SE holds 16.5%. Watertown Energy Limited has 10% and Ibile Holdings Limited has 5.5%. Only 35.2% of the issued capital is available to the members of the public.Earnings chart of Julius Berger

Investment Thesis
JBERGER benefits from the technical competence of Julius Berger International GmbH (Germany)  to build projects to the specifications of its clients. The company has acquired good reputation for its success in the construction of infrastructure in Nigeria. Being a foremost government contractor, JBERGER  stands to benefit from the huge infrastructural gap in the country.

The company should intensify efforts to acquire more private clients as the heavy reliance on government is harmful to results. Trade and other receivables account for more than half of current assets. In addition, earnings growth has been erratic. Revenue from building works increased by 26.2% in 2016 whereas it took a nosedive for civil works and services.

JBERGER's experience grants it the ability to charge a premium on its construction projects, but that advantage seems to be waning. This has taken its toll on profit margins on construction projects.

Management is investing massively in building works and services business segments to help soften the effect of dependence on the public sector in Nigeria. The services segment has made a remarkable contribution to shareholders' fund. These signs bode good news.

JBERGER consistently rewards its shareholders. We expect a total return of 48% in the next three years.

JBERGER has a Price/Earnings (P/E) ratio of 15 times. Currently, it trades at 2.4 times book value. A share of JBERGER is worth between NGN50.8 and NGN62.4 by our analysis.Graphs of returns of Julius Berger

Financial Overview
A revenue increment of 3.9% could not prevent JBERGER from recording a loss. Loss After Tax was NGN3.8 billion compared to a profit of NGN2.4 billion in the previous year. The company had a foreign exchange acquisition loss of NGN14.2 billion in 2016. However, total assets increased by NGN14.1 billion courtesy of 22.2% rise in trade and other receivables. Cost of sales to turnover dropped 7.4% (it shed roughly 6% in the preceding period). Both gross profit margin and operating profit margin are exhibiting upward movement. Gross profit margin added 7.4% to close at 39% while operating profit margin was up by 3.3%.

Return on Equity (RoE) and Return on Assets (RoA) rose by 4.6% and o.4% in the order given. Short-term borrowing of NGN33.2 billion surpassed shareholders' fund.  Operating profit has been covering interest obligations; in 2016, it covered it 2.9 times. Current ratio is 1.6 times; acid test ratio is 1.5 times. We believe that JBERGER is not insolvent.

Business Risk
The company's fortune is tied to the economic performance of the country. Major clients are government and government agencies and as such any slack in government revenue significantly affects the company.

Recommendation: Buy

Vital statistics of Julius Berger

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