EABL second company to hit $3bn valuation

EABL employees at the bottling plant in Nairobi. The firm’s operations in Uganda and Tanzania are expected to be a key driver of performance. FILE 

By GEORGE NGIGI
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In Summary

• The region’s biggest brewer was valued at Sh269 billion ($3.1 billion) on Thursday, based on the average closing share price of Sh340 per unit.

 

Beer maker EABL has become the second listed firm to cross the $3 billion market capitalisation mark, lifted by a sustained rise in its share price to an all-time high.

The region’s biggest brewer was valued at Sh269 billion (about $3.1 billion) on Thursday, based on the average closing share price of Sh340 per unit.

East African Breweries Limited’s share price has surged by more than 10 per cent in the past one week, driven by higher high demand especially from foreign investors.

“Investors are looking at Tanzania and Uganda as EABL’s playground. Some foreign investors will not invest in companies below a certain threshold (of market capitalisation) so its rise has put it in their radar and it has good dividend payout and growth prospects,” said Johnson Nderi, head of research at Suntra Investment Bank.

During Wednesday’s trading 93 per cent were foreign buyers, with none selling.

Telecommunications giant Safaricom is the most valuable firm listed on the Nairobi Securities Exchange (NSE), with a market value of Sh288 billion (about $3.4 billion).

The consistent rise of the two stocks has seen total market capitalisation increase to Sh1.66 trillion and the NSE 20-Share Index climb to nearly 5,000 points. Both stocks are heavily weighted constituents of the NSE 20-Share Index.   

The investors have cast their eyes away from the brewer’s half-year performance which saw its after-tax profit fall to Sh3.76 billion from Sh4.38 billion last year, despite increase in total revenues.

The performance saw EABL share price drop by 6.3 per cent in the month of February. Shortly after announcement of the results the EABL chief executive Devlin Hainsworth was replaced by Charles Ireland on April 1.

“In the short term, we believe it is relatively expensive compared to its peers. The stock is, however, attractive when looking at it from a three-year investment horizon” said stockbrokers Kestrel Capital in a research note on the stock. EABL’s regional operations in Uganda and Tanzania are expected to be the key driver of its performance moving forward.

Kestrel Capital analysts are betting on Tanzania’s share of revenues to grow at the fastest pace.

“In 2012, Kenya accounted for 68.8 per cent of net sales while Uganda and Tanzania accounted for 18.6 per cent and 12.6 per cent of net sales respectively. Going forward, we expect that the faster revenue growth in Tanzania, relative to Kenya, will lead to it accounting for a larger portion of net sales.”

Stiff competition from international rival SABMiller, which has entered the market through its subsidiary, Crown Beverages, is seen as a possible downside to the brewer’s prospects.

New rules regulating drinking hours in Kenya and introduction of a higher excise duty in Tanzania could also hamper EABL’s performance.