East Africa Breweries Limited’s #ticker:EABL stock price is set to rise over the medium term on projections of higher revenue from growing beer volumes in the region, analysts at Renaissance Capital say.
Rencap analyst Adedayo Ayeni said in the firm’s latest note on the brewer they expect net revenue in the period between 2018 and 2020 to grow by an average of 18.2 per cent driven by volume growth in Kenya and Tanzania.
“We increase our target price for East African Breweries (EABL) to Sh294.50 per share (from Sh243 previously) and maintain our hold rating. While we recently saw a momentary spike in EABL’s share price following news of a possible lifting of the interest rate cap, we believe there is a fundamental case for a higher valuation,” said the analyst.
“An improvement in Kenyan beer volumes and faster growth in Tanzania in the 2019 financial year, combined with stringent cost-cutting, should drive stronger earnings growth, in our view.”
The brewer’s stock is currently trading at Sh253 a share, having risen by 6.3 per cent since the beginning of the year.
The modest gains, however, pale in comparison to those made by other blue-chip firms in the top 10 bracket of the NSE, where manufacturing stocks are being outperformed by banks, services and telecommunications.
Only BAT Kenya #ticker:BAT lags behind EABL, with a price decline of 15 per cent to Sh660 in the year-to-date, as it faces stricter regulations.
Safaricom #ticker:SCOM, Barclays #ticker:BBK, Equity Bank #ticker:EAQTY, Bamburi #ticker:BAMB, Kenya Airways #ticker:KQ, KCB #ticker:KCB, Standard Chartered #ticker:SCBK and Cooperative Bank #ticker:COOP have recorded double-digit percentage gains this year.
EABL reported an 11.3 per cent fall in net earnings for the six months ended December 2017, blaming it on election-related uncertainty in Kenya, which made its products less affordable, and higher excise tax in Uganda.
Rencap said the new Sh154 billion plant coming up in Kisumu will also be key in pushing volumes.