EABL share price falls as high debt forces dividend cut
Mr Devlin Hainsworth, the CEO, with Finance director Tracy Barnes on Friday. Photo/SALATON NJAU
What you need to know:
Brewer’s stocks closed at Sh295 on Friday from Sh308 on Thursday, a 4.22per cent decline.
East African Breweries Limited (EABL) last Friday slashed its dividend payment by 40 per cent as it sought to conserve cash to fund its capital expenditure.
The market, used to handsome and stable dividend from one of Nairobi Securities Exchange’s oldest companies, reacted negatively with EABL’s stock price dipping during end-week trading.
The brewer’s shares closed at Sh295, a 4.22 per cent decline from its closing price of Sh308 on Thursday as investors also priced in the company’s fallen profit for the first six months of the year.
EABL said that it would pay an interim dividend of Sh1.50 per share for the period ended December 2012, down from Sh2.50 paid out for the half year ended December 2011 as financing costs ate into its profits.
“The timing of the Serengeti Breweries purchase has resulted in a significant increase in financing costs, but this has not come as a surprise to us,” said EABL’s group managing director Devlin Hainsworth.
“The directors recommend an interim dividend of Sh1.50 per share, reflecting the ongoing confidence in the company’s growth prospects and enabling it to pursue its capacity expansion and growth investment plans for the longer-term benefit of our shareholders,” added the majority UK Diageo-owned regional alcoholic beverages firm.
EABL posted a 14.45 per cent drop in net income to Sh3.755 billion for the six months to December last year, compared to Sh4.389 billion during a similar period in the previous year.
The brewer’s capital expenditure has increased substantially over the past three years.
The profit dip is underwritten by interest payments on a loan provided by Diageo to buy Serengeti Breweries Ltd, resulting in financing costs of Sh2.1bn, a 221 per cent rise from the previous year’s Sh642m.
The company said that since 2010 it has made capital investments including the acquisition of the majority interest in Serengeti Breweries, the installation of a mash filter in Uganda, and a canning line in Kenya.
“We were expecting a decline in profits. The interest costs are dragging profits down. They are going to be paying the debt from existing cash flows so there may be a potential cut or conservative dividends payout,” said Mr Eric Musau, a research analyst at Standard Investment Bank.
Investment banks, including SIB, have been recommending that investors sell the stock which has been one of the biggest gainers this year.
