The plan by Julius Berger, JB Plc to veer into the oil and gas business will lead to a change of financial fortune for the company, investment analysts have said.
According to the analysts the move would end the company’s over dependence on construction, especially government contracts, which is not forthcoming due to the recession in the country.
Recall that JB recently said that it has signed a strategic partnership with Petralon Energy Limited for the acquisition and development of oil field. According to the company, the alliance is in line with its goal to diversify into the oil and gas sector.
Commenting on the partnership, Mr. Aigboje Higo, Managing Director, Capital Bancorp Plc, who lauded the initiative, said it is not surprising that JB has decided to diversify more due to the constraints in the construction and engineering sector.
He said that the choice of partner for the oil and gas project, as well as plan to build independent power plant was commendable.
He stated: “Because of the recession in 2016, Julius Berger had challenges with their business and it made a loss. The turnover was down and a lot of people were owing because the government was not able to pay. There was no new or too many new projects because people did not really have money to start new projects. There were too many uncompleted or ongoing projects not to talk of starting new projects. So, it is not surprise that they decided to engage in another business transaction that will not be too dependent on the government.
“They also want to do power and civil works; they want to do independent power plant. They are also looking at opportunities in power sector. So, for the shareholders, I think it is good because they now have diversified revenue stream. The company will do a lot better and survive a very turbulent time. However, this kind of project take time to yield good result because a pipeline takes two to three years to construct; oil and gas project also has a long gestation period, but it can be very lucrative.
In his comments, Tola Odukoya, Managing Director/CEO, FSL Assets Management, stated: “The move bolsters the strategic statement of the company regarding its intention to diversify and expand its business activities significantly, thereby reducing its reliance on its core area i.e. construction.
“Barring any unforeseen and unpleasant developments, one would expect such an initiative to bode well for the company, its businesses and shareholders. In my opinion, this is based on the expected synergistic effect that could result from the combination of both companies i.e. Petralon and Julius Berger, and what this could mean for latter in terms of revenues and profitability in the years ahead.
“My view has taken into consideration Julius Berger’s existing business activities and how they tie into the various areas of acquisition and developments of oil fields.”
Charles Fakrogha, a stockbroker and Chief Relationship Officer, Foresight Securities and Investment, said the company will earn additional income, while shareholders value would be enhanced.
“We need to also realize that Julius Berger has done and is still doing a lot for the oil and gas sector. I believed that their experience in construction in the oil industry will give them easy operation in their new role,” he stated.
For David Adonri, MD/CEO, Highcap Securities, the diversification would add value to JB’s business, while the price sensitive information will increase demand for the share.
JB ended 2016 with loss before tax and loss after tax of N1.5 billion and N3.82 billion, representing 123.05 per cent and 256.05 per cent decline compared to profit before tax and profit after tax of N6.5 billion and N2.44 billion in 2015 respectively.
Though the situation has started to ebb in the second quarter, Q2, to June, 2017, the half year, H1, result for the year still showed losses in the company’s books. For Q2 ended June 30, 2017, the company bounced back to profitability with N82.94 million PBT and N72.27 million PAT, but the H1 result showed loss after tax of N364.73 million.