May 2, 2018/Vetiva Research
Highlights of Vetiva Analyst Report
PAT outperforms estimate albeit underlying earnings remain weak
Company still relies on short term financing to support operations
FY’18 PAT estimate revised lower to ₦2.2 billion (Previous: ₦2.8 billion)
TP revised lower on reduction to estimates
Strong earnings growth driven by other 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 Revenue. 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).
However, lifted by Other Income of ₦6.0 billion – arising from Sale of assets and FX gains – EBIT rose 121% y/y to ₦4.0 billion (Vetiva: ₦2.4 billion). Meanwhile, Net Financing Cost (₦2 billion) was relatively flat y/y as the company continued to rely on short-term financing, contrary to our expectation of an improved cash position. We recall that in recent years, JBERGER has incurred high finance charges as the company has increasingly looked to short-term financing to meet working capital needs. We had however anticipated a stronger cash position for the company after the company’s cash position improved in Q4’17.
Cautious outlook on JBERGER, FY’18 estimates revised lower
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).