Citi tips EABL stock to gain in first half

What you need to know:

Citi analysts reported volumes in Kenya have recovered from their election-related setback earlier in the year and this should be reflected in the six-month results for the period to the end of this month.
The company has also been able to pass through the excise duty increase to consumers and even managed to squeeze in some margin through higher prices.
Citi notes the Kisumu brewery is on track to begin production within two months with the production around one million half-litres of capacity for Senator expected.

East African Breweries Limited (EABL) #ticker:EABL is expected to post higher earnings a share on the back of double-digit revenue growth from Kenya in the first half ending December 31, analysts at Citi Global Markets say.

Quoting the company’s management, the analysts reported volumes in Kenya have recovered from their election-related setback earlier in the year and this should be reflected in the six-month results for the period to the end of this month.

The company has also been able to pass through the excise duty increase to consumers and even managed to squeeze in some margin through higher prices.

“In Kenya’s bottled beer segment, the company successfully passed through the excise tax increase on bottle beer over the summer and managed to slip in some margin expansion. This was a modest dampener on volumes but was more than offset by the higher prices,” said Citi.

“For its value offering, Senator, the rebound from the first half of 2018 has been strong as volumes have recovered much of their election-related setback. In spirits, performance continues to be solid, continuing recent trends, led by mainstream. In all, revenue growth out of Kenya should be double digit in the first half of 2019 [July-December 2018].”

Citi notes the Kisumu brewery is on track to begin production within two months with the production around one million half-litres of capacity for Senator expected.

Growth is also taking place in Uganda. The situation is mixed in Tanzania where, despite some strong beer performance, there is risk from the regulators and the spirits are performing below expectation, the analysts said.

The analysts term the firm’s share a “buy”, saying that its current price of Sh164 (November 4) on the Nairobi Securities Exchange is below potential or target of Sh230 a share.