East Africa Breweries Limited (EABL) registered a 33.0% y/y growth in after tax profits for 1H2019 to KES 6.6 billion (1H2018: KES 5.0 billion). The rise in profitability was mainly driven by a 13.0% y/y growth in net sales to KES 41.6 billion (1H2018: KES 36.8 billion), which were supported by a 13.0% y/y growth in volumes (30.0% y/y growth in Senator Keg and 65.0% y/y growth in Serengeti). The rise in net sales was attributable to innovations in brands across their markets (Serengeti Lite, Tusker Cider, Black and White, Captain Morgan Gold, Uganda Waragi Pineapple). According to management, a stable operating environment (characterized by low inflation, a stable political climate and a consistent and predictable tax environment) also contributed to the improved performance. Gross profits climbed by 20.0% y/y to KES 19.2 billion, despite a 7.5% y/y rise in cost of sales to KES 22.4 billion, predominantly due to the faster rise in net sales. Consequently, EABL posted a gross profit margin of 46.1% (1H2018: 43.4%). According to the company, net borrowings declined by 14.0% y/y to KES 23.7 billion following the repayment of KES 11.5 billion Diageo loan. Finance costs eased by 14.0% y/y to KES 1.7 billion owing to a drop in interest rates and the capitalization of interest on the Kisumu brewery loan (one-off accounting benefit). Cash generated from operations rose by 75.3% y/y to KES 12.6 billion, enabling the company to support its CAPEX requirements. We expect EABL to focus on improving margins, cutting costs and expanding their product mix. This should enhance performance in 2H2019. Furthermore, we expect the commissioning of the Kisumu brewery in 2H2019 to drive up volumes.
Stock Market Performance and Outlook
The overall market edged up by 0.8% w/w to close the week at 146.48 (NASI), characterized by decreased trading volumes and turnover. We attribute the gain in the market to the easing of selling pressures as investors continued to take advantage of the discounted prices on most counters. There was an increase in foreign inflows as investors’ risk appetite for emerging markets increased. Some of the counters that posted notable price gains include; Equity (+1.7% w/w), KCB (+2.8% w/w), Kenya Power (+12.7% w/w), Sanlam (+17.3% w/w), Coop (+8.6% w/w) and EABL (+11.0% w/w).However, there were profit taking activities on Centum which led to a loss of -1.7% w/w. We expect market conditions to remain relatively unchanged in the coming week.