Last week, shares of construction-giant, Julius Berger was the toast among investors after the company announced it recorded N10.3billion as profit for the full-year ended 31st December 2019. On Tuesday, price surged 9.93percent, almost 10percent gain that is allowed in a day to N22.15. On that day, a total of 12.55m units of shares exchanged hands, the highest volume since June 26, 2015, when a total of 136.23m units of shares was traded.
Still basking in the euphoria of an impressive result, investors swoop on the shares of the construction-giant on Wednesday and Thursday trading 1.22m and 1.74m units of shares respectively, prices up 0.45percent and 1.12percent on the two days, while profit-taking by investors took over on Friday with prices dropping 1.33percent.
Amid an economic recession, the company plunged into N2.39bn loss in 2016. Understandably, the construction-giant relies on public spending (Federal and State Government) spending.
During the economic contraction, the company was left exposed to a huge foreign exchange acquisition loss of N14.23bn.While the foreign exchange losses have reduced with an improved economy, they still remain significant. Further devaluation in the nearest future (no matter how slim) could have a negative impact on the company’s results.
Julius Berger has since found the path of profitability, thanks to improved economic growth, though sluggish, with an uptick in capital expenditure spending by government. In 2017, the company recorded a bottomline of N2.51bn, while in 2018, it ballooned to N6.1bn.
In its recently released consolidated unaudited fourth-quarter result for the period ended 31ST December, revenue ballooned to N264.55bn from N194.61bn. Marketing expenses increased to N168.32m from 126.8m in 2018. Administrative expenses stood at N35.31b from N34.46bn in 2018, leaving profit after tax at N10.3bn from N6.1bn in full-year 2018.
Further breakdown of the revenue segments of the group show that civil works segment recorded N150.79bn from N110.15bn in 2018, Building works segment recorded N89.94bn from N65.70bn in 2018, facility management services recorded N23.81bn from N17.39bn in 2018.
Following its vision for diversification, the JB plc in August announced that it would be participating in the bidding process for the Camalaniugan (Cagayan) Bridge in a consortium with Frey-Fil Corporation in the Philippines. This may have led to a marginal increase in revenue from its Asia & Europe markets to N4.55bn from N4.26bn. It also announced the acquisition of 20% of equity share capital in Petralon 54 Limited.
Industry Analysis
Nigeria is still battling with a humongous infrastructural deficit and according to the National Integrated Infrastructure Master Plan, an estimated $3trn would be required over a period of 30 years to bridge this gap. Another estimate also suggests that the country requires an annual investment of $15.0bn (or N4.6tn) – 45.0% of 2020 of budget – for 15 years to adequately develop its infrastructure nationwide.
Last year saw construction sector GDP expanded 2.37percent year-on-year in the third quarter and 0.7percent year-on-year in the second quarter. Its contribution to total real GDP was 3.01percent in the third quarter; same as its contribution in the same quarter of the previous year, but lower than in the second quarter where it contributed 4.45percent.
With government’s commitment to transport and housing infrastructure, the headroom for growth is clearly compelling for construction companies such as Julius Berger.
The demand from the public sector remains one of the strongest drivers for construction companies in Nigeria. While the execution of capital expenditure continued to underperform the budgeted figure, government spending on infrastructures such as road, housing, and rail transport has been sustained lately.
Over the last 8 years, the Federal Government has spent an average of N0.9tn per annum on infrastructure. According to President Buhari, some of the projects Nigerians should expect to come upstream from 2020 include: 47 road projects scheduled for completion in 2020/21, substantial work on the Second Niger Bridge; and completion of 13 housing estates.
There are signs the company might do far better in coming years considering and Julius Berger’s dominance in the market with Federal Government’s plan to borrow N2tn from N10tn pension assets for infrastructural investment.
Accordingly, a moderate implementation of 2020 budget to complete ongoing projects may buoy the top line of Julius Berger in this financial year.
Notable highway construction handled by Julius Berger include the Lagos–end of the Lagos-Ibadan Expressway, ongoing second Niger-bridge, the Abuja-Kaduna-Kano road, rehabilitation of Runway and Taxiways at International Airport, Abuja, the Construction of multi-purpose sports arena in Uyo, Akwa-Ibom State, Construction of the iconic cable-stayed bridge in Lagos; several turnkey building projects in the coastal areas, and many more.
In 2019, capital releases could only commence after the signing of the 2019 Budget on 27th May 2019. As at 30th September 2019, a total of about N294.63 billion had been released for capital projects.
With the early passage and signing into law of 2020 budget, the ministry of works and housing tops the list of top capital allocations in the 2020 budget with a total capital allocation of N259.20bn, with over N210 billion for the construction and rehabilitation of roads in every geopolitical zone of the country, N1 billion for construction of Terminal Building at Enugu Airport, N10 billion for construction of Second Run-Way at Nnamdi Azikiwe International Airport Abuja.
Corporate Governance
Mutiu Sunmonu is the chairman of Julius Berger a first-class degree in Mathematics and Computer Science from the University of Lagos. On January 1, 2008, he was appointed the Managing Director of SPDC and Regional Vice President Production. On January 1, 2010 Sunmonu became the Country Chair, Shell Companies in Nigeria; Sunmonu resigned from Shell Petroleum Development Company (SPDC) in 2015 after 36 years of service. As at 20 March 2019, he owns 1million units of shares in the construction firm.
Lars Richter as Managing Director who holds a Doctorate Degree in Civil Engineering and has vast operational experience, broad technical know-how and a strong knowledge of Julius Berger, Nigeria-wide.
Other directors include Belinda Ajoke-Disu, daughter of billionaire businessman, Mike Adenuga. As at 20th March 2019, Bella has an indirect holding of 288.6million units of shares through Goldenstone Estates Limited and Bilton securities Ltd. Jafaru Damulak also owns 1.98m units of shares at 20th May 2019.
The renewed commitment by the government to develop the decrepit infrastructure would mean that Julius Berger’s bottomline would receive a boost. However, the firm needs to further intensify its diversification plans as reliance on public spending is no longer sustainable. The lessons from the last economic recession should push the company to further diversify its portfolio.
