Morning Market Brief 23rd January 2019 And EABL 1H19 Pre-Earnings Snapshot

East African Breweries Ltd (NSE: EABL) 1H19 Pre-Earnings Snapshot 
East African Breweries Ltd (NSE: EABL) is set to release 1H19 (Jun – Dec 2018) results this Friday, 25th January 2019.

  1. First halves have always been strong (absent any new taxes introduced by the National Budget in June) due to the key festive season of December. From a surprisingly good 2H18 (Jan – June) last year (net sales +10% y/y), we expect net sales growth of 5.6% into 2019 compared to -0.3% in 1H18. EPS is expected at circa KES 6.00 from KES 5.21 in 1H18.
  2. Gross margin expected to soften to 43.2% compared to 43.5% in 1H18 mainly due to expected recovery of the low margin Senator Keg. In 1H18, production of Senator Keg was affected (-22%) by a maintenance-related factory shutdown in July and August. From this lower base, full production is expected to increase the mix of the lower margin brand into the beer portfolio, which is expected to weaken gross margins to 43.2%. 
  3. Interim dividend expected to be maintained at KES 2.00. This would imply a trailing dividend yield of 5.7%, anchoring the stock’s attractiveness as an income stock.  

We are currently reviewing our valuation and estimates which could subsequently change our recommendation on EABL.

Trading Expectation:
Equities traded lower in the previous session with all top traded counters closing in the red. Foreign investors accounted for 69% of total market turnover with an overall selling sentiment. In today’s session, we still expect activity to be on the index counters with uptick in EABL’s trading as the brewer releases it’s 1H19 results on Friday, 25th January. We also anticipate foreign investor dominance in the session with participation on the selling side of the index counters.

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by Genghis Research

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