The stock price of East Africa Breweries Limited (EABL) could rise over the medium-term due to projections of higher revenue from increasing beer sales in the region, Renaissance Capital analysts say.
According to Adedayo Ayeni, an analyst from Renaissance Capital, the brewery’s net revenue is expected to increase between 2018 and 2020 by an average of 18.2 percent. The growth is expected to be propelled by volume growth in Tanzania and Kenya.
“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.”
Currently, EABL’s stock price is at Sh253, a 6.3 percent surge since the beginning of the year. However, the stocks of other NSE-listed companies are performing. The only other listed company that is lagging behind EABL is BAT, whose price dropped by 15 percent to Sh660 amid stricter industry regulations.
Renaissance Capital expects the new plant being set up in Kisumu by EABL to contribute to increased volumes.
EABL’s net earnings dropped by 11.3 percent for the six months ended December 2017. The drop was attributed to the uncertainty created during the election period and a higher excise tax in Uganda.