EABL market value drops by Sh16bn after profit fall

Beer maker EABL dropped by Sh8 in Monday’s trading at the NSE, extending losses that investors in the stock have suffered since Friday when the company announced a 14 per cent drop in after-tax profit.

East African Breweries Limited’s market capitalisation has dropped by Sh16.3 billion to Sh227 billion since Friday’s announcement of its half-year performance.

On Monday, its share price fell to Sh287 from Friday's closing of Sh295.

The brewer’s six-month net profit dropped to Sh3.8 billion from Sh4.4 billion in the first half of last year.

It slashed the interim dividend payout by 40 per cent to Sh1.50 per share to conserve expansion cash. EABL’s finance costs rose 221 per cent during the half to Sh2.1 billion.

(Read: EABL share price falls as high debt forces dividend cut)

Analysts at Standard Investment Bank said EABL’s share lost ground “despite strong foreign investor demand.”

The beer maker also reported a foreign exchange loss from its Uganda, Tanzania and South Sudan operations, bringing to light the costs that Kenyan businesses are incurring due to currency volatility of the regional economies and a biting shortage of dollars in South Sudan.

The beer maker reported Sh436 million “losses on other income” in its half-year financial statement, which management said relates mainly to foreign exchange losses in Uganda and Tanzania.

EABL said in a response to our queries that the South Sudan operations suffered forex losses of about 0.5 per cent of the “other operating expenses” item, equivalent to about Sh218 million.

“Forex risk in South Sudan is becoming a major issue for businesses with operations in the country,” said Kuria Kamau, an analyst at Kestrel Capital.

South Sudan has suffered a dollar crunch since it stopped oil exports following a disagreement with its northern neighbour over fees payable for the use of the pipeline that transports the oil to Port Sudan for export.

The Central Bank of Kenya and the Bank of South Sudan announced in December they are in talks that could lead to the setting up of an official exchange rate between the two countries.

The CBK said it would open reciprocal accounts with the Bank of South Sudan (BSS), which would help to smoothen currency exchanges between two countries by giving local banks a chance to take currencies of either country to their local central bank.