More facts emerged at the weekend over Julius Berger Nigeria Plc, board of directors’ decision to diversify into agro- processing business. Parts of the reason behind, the surviving strategy has been linked to low patronage and competitions in the construction industry.
Financial Edge findings among some market watchers and analyst, shows that the decision of the directors is inevitable considering the current global economic reality, especially with the recent coronavirus that has crippled world social, political and economic activities.
Commenting on the development a senior market operator and Executive Vice Chairman, Highcap Securities Limited, David Adonri, noted that agriculture in Nigeria has huge supply gap and a new frontier for income generation. “Julius Berger decision to enter the industry is commendable. The industry will benefit from their capacity and strength”.
Although, the contraction giant could be sighted in some parts of the country, where major ongoing projects are been executed and needless to emphasis on few contracts agreements both at the federal and sub-national levels.
The diversification, according to some stakeholders in the constructions industry is the new normal and way to go if the company wants to remain a going concern in Nigeria. According to them the continued lip service to infrastructure growth, which is Julius Berger area of competence and domestic economy being further bedeviled by paucity of fund, hence the company need not wait to be stiffed out of operations.
They noted that the attention shift to agro processing as indicated in their notice to the Nigerian Stock Exchange (NSE) last week, is also a pointer that most listed companies have been leveraging on free money in the economy and government patronage, which the unexpected Covid-19 has become a game changer. As other companies will definitely follow suit, because investment in the agricultural space is the only way to go for now and that the sector is a money spinning one, if well galvanized.
On the flip side, the Managing Director, Afrinvest Research, Abiodun Keripe said although the details of the diversification are still very sketchy at the moment, “I broadly think this is a positive surprise. With all that is happening to economies both locally and globally, it is important to have diversified revenue based for stability and continuity. Guaranty Trust Bank Plc also announced to be adding a few more businesses to its core banking via the HoldCo structure. Agro-processing is clearly a frontier for growth given the huge gap, Nigeria’s population and continued government focus in that space”.
Keripe explained that “you will agree with me that competition is increasing in that space with the entrance of the China Construction Company and a few more indigenous businesses competing for a slice of government construction contracts. Over the long-run, for revenue and profitability to remain sustainable and to create more value for shareholders, I think this is a good idea. This does not mean that Julius Berger is exiting the construction space in any way, to the best of my mind”.
On investors’ perspective regarding the diversification plan, one of Nigerian shareholders advocate, Boniface Okezie, National Chairman, Progressive Shareholders Association of Nigeria, (PSAN) said Julius Berger diversification into agribusiness is a master booster for the organisation and the economy.
According to him “Since the company is out to make money and the buck of their patronage is from the government, who in recent times appears not to be keen about infrastructure owning to funding challenges. I do not see anything wrong for them going into the agribusiness”.
Okezie pointed out that for instance, Flour Mills of Nigeria Plc entered the agric business space some years back, which in no small measure has helped to sustain the company and also meet their obligations towards their shareholders in the area of return on investments.
Julius Berger is a Nigerian construction company in Abuja with additional permanent locations in Lagos and Uyo. The company is represented across Nigeria in structural engineering and infrastructure works, and in southern Nigeria through domestic and international oil and gas industry projects.
The company presence in Nigeria dates back to 1965 when the firm won a tender to construct a N312 million second Mainland bridge in Lagos. The project was a significant civil engineering endeavor because it was the first in the country to be built with pre-stressed concrete. The construction of the bridge was designed in phases with the first phase completed in 1969 and last phase completed in 1974.
It is known for constructing most of Nigeria’s infrastructures, major expressways, and even some residential buildings. The company has been listed on the floor of Nigerian Stock Exchange (NSE) since 1991. The construction business of Julius Berger is the heart of the Julius Berger Group. It share price was N15 at the close of trading on Friday 25, September 2020.