Thursday, March 31, 2016 4:13PM /Vetiva Research
JBERGER reported a 70% y/y drop in FY’15 EPS to N1.85, 54% behind our estimate and 59% behind consensus estimate. Q4 operations alone resulted in a loss of N0.6 billion amidst continued pressure on topline, increased finance cost and higher tax expense over the three month period.
After declining marginally in Q3, revenue in Q4 slumped further 34% q/q to N22.3 billion as the tough macroeconomic environment, particularly the Government’s weakening fiscal position, took a toll much more than we had expected.
We are more surprised by this performance given that construction activities over the quarter as measured by GDP rose 15% q/q – this leads us to believe that competition may have played a role in the weaker than expected numbers reported by JBERGER. The cumulative revenue for FY’15 was down 32% y/y to N133.8 billion, 23% behind our estimate and 28% behind consensus estimate.
Notwithstanding the disappointing topline performance, management continued to show its commitment to maintaining profitability over growth as FY’15 EBIT margin came in at 9.4% (FY’14: 9.5%); Q4 EBIT margin alone came in at 18.4%. We note the 39% downsizing in staff strength over the course of the year as part of management’s cost cutting policies.
Also, as expected, net finance costs remained on the high in Q4 amidst increasing short term financing to augment working capital. Overall, FY’15 PAT was down 70% y/y to N2.4 billion. The Board of Directors proposed a dividend of N1.50/share on the results (FY’14: N2.70/share).
Valuation revised lower, SELL rating maintained
We think the delay in the passage of the 2016 budget, amidst weaker government revenue, will continue to impact JBERGER’s operations. That said, we believe this could result in another weak topline performance in Q1’16.
As such, we revise our FY’16 revenue estimate to N137.8 billion (Previous: N190.5 billion), with much of the contribution coming from H2’16. After updating our model (including high finance costs), we cut our FY’16 EPS estimate to N2.59 (Previous: N5.15). We have also revised our target price downward to N31.64 (Previous: N39.10).
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