A section of the East African Breweries Ltd plant in Ruaraka.. FILE PHOTO | NMG
East African Breweries Ltd (EABL) #ticker:EABL is projected to
chalk up lower income growth after 2018 leading to less return on equity
(RoE), a new analysis says.
Citi analysts indicate the
company, which saw its net profit fall by 20.6 per cent in its latest
financial year report, is facing challenges ranging from an excise tax
increase to high debt levels.
The brewer, while having
a better outlook for the second half of this financial year, has weak
growth momentum according to the US firm.
“The second
half should be better, but momentum looks weak. The Kenyan economy is
showing signs of improvement, with sharply lower inflation and a rebound
in economic activity indicators. This should support better performance
in the second half,” said Citi.
Underperformance
The investment bank notes that EABL has significantly underperformed large cap peers in recent months.
Data
from the Nairobi Securities Exchange show the company’s price per share
rose by 9.61 per cent in the past 12 months but shrank by 4.92 per cent
in the last six months.
The share price of its large
peers — the 10 largest firms by market cap as of February 2 — rose by at
least 22 per cent in the past 12 months.
“EABL shares
have underperformed Kenyan large cap peers significantly in recent
months, but unfortunately these results are likely to discourage
investors looking for a quick catch up,” said Citi.
Share price rise
The
analysts said the company’s share price is likely to rise to about
Sh275, which is only Sh3 above its highest price in the past 12 months.
“EABL
continues to be bedevilled by tax volatility in its various markets.
For this period it was Uganda that seems to have replaced Tanzania as
its problem market, following excise increases there. The company also
cited (in announcing six-month results) election-related uncertainty in
Kenya as dampening consumer demand,” said Citi.
The
return on equity, which stood at 44.30 per cent in 2017, is forecast to
rise to 47.56 per cent this year, but then fall thereafter to 44.02 per
cent in 2019 and 39.06 per cent in the following year.
This means that the RoE is projected to fall by more than half compared to 2014 when it stood at 81.80 per cent.
Net income is forecast to rise to 28.1 per cent this year, fall to 14.3 per cent in 2019 and 9.5 per cent in 2020.
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