Profit warning piles pressure on EABL stock

 

An EABL bottling plant in Kenya. The EABL share came under pressure July 31, 2013 dropping by Sh14 to Sh335 as investors factored in the profit warning issued after markets closed on July 30. Photo/FILE  Nation Media Group

By CHARLES MWANIKI

In Summary

• Old Mutual Securities, in a research note, predicted a further drop in the beer maker’s share price, joining other investment banks that have in the past three months held that the stock is over-priced.

The East African Breweries share came under pressure again Wednesday, dropping by Sh14 (four per cent) to Sh335 as investors factored in the profit warning issued after markets closed on Tuesday.

Old Mutual Securities, in a research note, predicted a further drop in the beer maker’s share price, joining other investment banks that have in the past three months held that the stock is over-priced.

Old Mutual analysts said the stock has a 19.4 per cent downside risk potential on the current market price, based on the company’s “weak balance sheet, high interest expense, high taxation as well as the rising competition.”

The latest fair price projection tallies with predictions that were made by analysts at Kestrel Capital and Standard Investment Bank (SIB), that valued the stock lower than the current trading price of Sh335.

“We believe that EABL is somewhat expensive at the current price in comparison to our fair value estimate of Sh279 per share. In our opinion, we believe the stock is overvalued in the near term,” said Old Mutual.

Kestrel Capital in their valuation update at the end of April had issued a fair price valuation of EABL of Sh289, while SIB issued a lower fair price valuation of Sh209 in their update at the end of May.

EABL issued the profit warning on Tuesday ahead of the release of the 2012/13 financial year results at the end of this month, saying that its net earnings are going to come in lower than 25 per cent to the previous year’s numbers.