Julius Berger: Buy Opportunities Amidst Infrastructure Renewal Bids

Julius Berger is a leading construction company in Nigeria today and one of the oldest quoted companies on the Nigerian Exchange Limited, having been listed early in 1970 and has dominated the Nigerian infrastructure and heavy construction space for over the last three decades. Within the period, it has been and remained a worthy ally of the three tiers of government across the country, besides its rich array of private sector clients, as a first choice in the area of highly technical jobs, such as bridges and flyovers across difficult terrains. 

With the increase in the Federal Government’s 2022 capital expenditure projection by over 25%, as part of efforts to further bridge the nation’s infrastructural gap, while supporting economic growth, and development, while enhancing business fundamentals.

For investors and traders, the last closing price of Julius Berger (N26.50 each as of Friday, March 25, 2022), presents a great opportunity to buy for stability, liquidity, and wealth. The company’s fresh contracts, or businesses with governments, especially the recent construction deals signed with the Lagos and Rivers State Governments, among others, will boost top and bottom lines.

Overall, Julius Berger’s improved earnings, shareholding structure and relatively low shares outstanding are factors likely to support its market price, going into the future, as politicians prepare to showcase more of their achievements in preparation for the 2023 general election. This price is driven by the company’s strong market fundamentals, and poised to further increase its streams of income, the company recently diversified into the agricultural sector. Specifically, Julius Berger announced its entry into cashew processing, as processing of the produce is currently done in faraway Kenya, from where it is shipped to Europe, even when it is grown massively across the country’s food bed. This will help the company earn foreign exchange, besides supporting the top and bottom lines.. 

According to its unaudited 2021 full-year earnings report, Julius Berger grew both top and bottom lines by 40.1% and 654.84% respectively, expanding EBITDA margin by over 70 points, and thereby reinforcing its resilience and profitability. This company is, therefore, positioned for sustainable growth, especially following the presidential assent to a Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme, which we believe, provides a pipeline of concrete projects for the construction giant.

Also, recall that the Nigerian National Petroleum Company Limited recently got approval to construct and rehabilitate roads spanning a total distance of 1,804.6km at a financial consideration of N621.2 billion. Being a major player in the industry, we are confident that Julius Berger is well-positioned for the lions of the job, given its national spread and quality for which it is renowned.

From a valuation standpoint, Julius Berger currently trades at 4.66x PE, and has a Book Value of N33.80 per share, both of which reveal the undervalued state of the company, and means that it is selling at a discount already, added to the premium price of this offer.

With the 2021 unaudited full-year earnings per share of N5.58, there is a high dividend possibility of N 2.50 to N3.00 each, considering the low payout and the bonus shares given in the previous year.

Technically Julius Berger looks good on the weekly chart, while side-trending on the daily time frame, while awaiting a trigger to pull it either north or south.

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