President Buhari Friday signed the 2016 Federal Budget after a protracted period of budget padding, accusation, and counter accusations, negotiations and frustrations. The president announced that his government will be immediately injecting about N350 billion in infrastructure spending into the economy.
He revealed that N200 billion will be set aside for road construction alone from the 2016 Budget alone, a huge leap when compared to the N18 billion set aside in 2015. For investors in the Nigerian stock exchange wondering how this could impact on stocks, one major company comes to mind.
Julius Berger Plc is poised to benefit immensely from this budget after a disappointing 2015 that saw revenues drop by a whopping 32% to N133.8 billion. Road construction projects which the company classes under Civil Works segment reported a 30.6 percent drop in revenues to N79.8 billion. With the budget now passed, analysts project that revenues from Civil Works and Building Constructions could spike. In its 2015 Q1 results, it reported that revenue from Civil Works dropped by 34% to N16.3 billion (2015 Q1: N24.7 billion). The company is basically hanging on a thread and will look forward to the implementation of the budget to help boost toppling revenue growth.
Julius Berger’s share price has closed flat at N43 for the last one month and still carried a high price to earnings ratio of 23x. It is a tightly held stock with a free float of about 464.4 million out of its issued ordinary shares of about 1.32 billion. 4 entities control about 52% of the stock suggesting this could be the reason why the share price hasn’t dipped even further.
Julius Berger hit a peak of about N72 in 2014 when the company was still posting annual revenues of about N200 billion. Revenues once jumped 19 percent to N201.2 billion in 2012 from N168 billion in 2011 during the first year of the newly elected President Goodluck Jonathan. A repeat of the goodwill and business extended to the company by the Buhari administration could attract a similar spike. The company relies mostly on government contracts to make money and as such you will expect the board and management of the company to have commenced intense lobbying.
The influence of the board members on the current Buhari administration is currently not clear considering that most of the directors had a somewhat affiliation to the PDP. The current chairman of the company AVM (Dr.) Mohammed Nurudeen Imam, also served in the defunct IBB led Armed Forces Ruling Council (AFRC) that toppled the Buhari Government.