The share price of East African Breweries Ltd ( EABL) rose by Sh3 to trade at Sh308 or 0.98 per cent at close of trading at the Nairobi Securities Exchange (NSE) on Thursday.
The upward swing comes ahead of the company releasing its end year results today.
But even with this slight bleep at the bourse, investors will be watching its financial results, given that it had earlier issued a profit warning on July 30.
“The share price has in fact corrected 11.3377 per cent lower since issuing its profit warning,” said Aly Khan Satchu, an independent financial analyst.
Decline in profit
EABL borrowed Sh19.5 billion, which it used to buy the 20 per cent of Kenya Breweries Ltd (KBL) that they did not own.
“That leveraging of the balance sheet and the attendant interest charge is what is crimping earnings. I expect a decline of about 25 per cent in its year on year profits,” said Satchu.
Satchu observes that while the EABL share price has overshot to the downside, investors increasingly appreciate that the company is double downing on growth. The Year on Year net Sales will be higher, adding that some near term pain has to be taken for a steeper medium term earnings trajectory.
“I think the share price which is up 15.904 per cent in 2013 versus The NSE All Share which is up 31.678per cent over the same period has priced in today’s news,” said Satchu.
EABL usually announces its results twice every financial year; in February for its half year results and in August when it releases full year results in Nairobi and Kampala.
The brewer is listed at the NSE, Uganda and Dar es Salaam Stock Exchanges. Diageo, of which EABL is a subsidiary, has its ordinary shares listed on the London Stock Exchange.
Capital injection
Since 2010, EABL has made substantial capital investments in line with its long term growth strategy. This includes a Sh4 billion investment in capacity and process improvements in Kenya.
This followed the investments in the acquisition of a majority interest in Serengeti Breweries Ltd, the acquisition of the minority interest in Kenya Breweries Ltd and the construction of a new brewery in Moshi, Tanzania.
Other investments include building a mash filter in Uganda and a canning line in Kenya. This has increased financing costs.
As a result of the growth in financing costs, EABL profit attributable to shareholders declined by 14 per cent to Sh3.755 billion.
By Jackson Okoth, The Standard
