Topline comes in 4% higher q/q
· Operating margin contracts from 3.2% in Q1 to 0.6% in Q2
· Naira appreciation drives lower FX acquisition losses
· TP revised to ₦24.79 (Previous: ₦25.92)
Strong Q2 numbers lifted by deceleration in FX losses
JBERGER reported H1’17 loss of ₦364.7 million, a modest improvement from the ₦426.9 million loss recorded in the first quarter of the year. The reported bottom line also came in better than our estimated loss of ₦1.3 billion, driven by stronger-than expected Q2’17 PAT of ₦72 million vs. our ₦711 million loss estimated for the period.
Whilst revenue grew a modest 4% q/q to ₦35.5 billion, earnings were further pressured (EBIT down 17% q/q) by a 20% rise in OPEX. This is particularly worrying given that ex-other gains and losses, operating margin declined to 0.6% vs 5-year Q2 average of 9.4%.
However, the impact on bottom line was cushioned by a moderation in FX acquisition losses to ₦628 million (Vetiva estimate: ₦750 million) and a lower than expected tax expense.
We recall that the FX translation loss reported in previous results had been due to the difference between the official FX rate and the rate at which the currency is being sourced in the parallel market.
However, we have seen notable appreciation in parallel market rates since the introduction of the I&E FX window. We believe this must have been largely responsible for the moderation in FX losses.
Profit, valuation revised lower
In line with our previous expectation, we expect revenue to pick up in the second half of the year spurred by capital releases following the passage of the 2017 budget in Q2. As such, we keep revenue estimate unchanged at ₦148.8 billion.
We maintain our finance costs and FX translation forecasts as we anticipate a relatively stable FX environment. We continue to monitor the rising operating expenses (OPEX as a % of sales at 23.5% in H1’17; Q2’17: 25.1%) and maintain the H1’17 run rate for administrative costs in the second half of the year.
Consequently, we revise our FY’17 bottom-line estimate to a Loss after tax of ₦1.8 billion (Previous: ₦104 million profit). Also, we revise our target price lower to ₦24.79 (Previous: ₦25.92) and maintain a “SELL” rating.