Twice on this blog we have done a valuation of Julius Berger and twice we valued the stock at about N70. It seems like ages ago now, as the current sell-offs in the Nigerian stock exchange has inadvertently reduced the valuation of almost all the major stocks currently trading. Julius Berger closed trading today at N44.49, its lowest price in two years (Jan 2013). The last time it was under N45 TTM (2011) earnings per share was N3.68. It will close 2013 at a price of N65. Julius Berger also posted an earnings per share of N6.72kobo in 2013 and N6.8 in 2012 with its share price hitting as high as N72 at some point. All of these makes you wonder if really, the current price of N45 is a buy opportunity.
Julius Berger in its 2013 9 Months interim results post earnings per share of N4.48 a 70% increase compared to N2.64 posted a year earlier. It is important to note thought that the company increased its outstanding shares in 2014 and as such EPS for 2013 based on 1.2billion shares instead of 1.34billion shares would be about N3.15. So, EPS has still risen by an adjusted percentage of 42%. Julius Berger in the past two years have churned out strong Q4 results posting about N4billion in each of the last two. Achieving that same feat this year will be amazing and we are not suggesting history will repeat itself again. Another likely draw back in Q4 may also be an impairment in its forex balance. We estimate Julius Berger has foreign denominated loans worth between N9billion to N12billion. An 8% devaluation could result in a N800m foreign currency loss. All in all an earnings per share of at least N7 will be mostly welcome. At the current price of N45, that is a forecasted price earnings ratio if 6.4x. It’s currently a 7.2x
Julius Berger is a consistent dividend paying company. In the last two years it has paid between N3billion to N3.2billion in dividends. Another N3billion in dividends will result in a dividend per share of N2.2 and a forecasted gross dividend yield of about 5%. That for a stock with a 40% plus return on equity is massive.
The last time Nigeria had an election JB posted a 57% growth in profit after tax. However, times have changed and with the potential fiscal crisis in the hands of the government 2015 may just be disappointing for construction in Nigeria. The 2015 budget already reveals lower capital budget provisions and cash may not even be available to fund approved projects. Most states are also lean on cash and the private sector might also cut back on spending. Growth for JB this year may just be flat.
With the current volatility in the market, it is likely JB share price might drop again before it rises. It is also likely that the economic situation in the country may affect their valuation on the long run. Nevertheless, a price of N44, the lowest in the last one year is tempting and possesses potential upsides for value investors. The stock has a 15%-20% upside in the short to medium term.