12 December 2011

Kenya: EABL Share Rise Lifts Market Value to Sh132 Billion

A sustained rise in the share price of beer maker East African Breweries Limited (EABL) has lifted the firm's market capitalisation to Sh132 billion, cementing the manufacturer's place as the most valuable company at the Nairobi Securities Exchange (NSE).

Heavy investor demand drove up EABL's share price by five per cent to Sh168 last week from an opening price of Sh160.

With 790 million issued shares, EABL's market valuation now stands at Sh132.7 billion, about Sh22 billion above Safaricom's Sh110 billion -the second highest at the bourse.

"A raft of news from the brewer has spurred interest on the stock, investors are starting to find comfort with the strategies being employed to counter expected headwinds," said Sterling Investment Bank (SIB) in a research note sent out on Friday.

EABL was the most traded counter at the exchange last week mainly on account of one block trade that went through on Thursday, SIB reported.

"Information indicating that they are prepared for entry of competitors has boosted investor confidence," said Eric Musau, an analyst with Standard Investment Bank.

The brewer overtook Safaricom as the most valuable company at the NSE in August. Last week Safaricom's share eased 3.5 per cent to Sh2.75 on waning demand from foreign investors who have been the main buyers of the stock.

The other top five most capitalised companies at the NSE are Equity Bank at Sh63.8 billion, Barclays Bank at Sh63.5 billion and Bamburi Cement at Sh50 billion.

A marketshare war has been brewing following the conclusion of transactions reversing a marketing and share swap agreement between EABL and rival SABMillers last month. The brewers have launched two new brands.

"The launch of more brands by EABL shows that it is occupying more space while defending its own," said Mr Masau.

EABL introduced Tusker Lite last week and brought back Pilsner Ice. The brands target the premium end of the local beer market, which is also a target market segment for SABMiller.

SABMiller re-launched its Redds brand in Kenya, while also introducing US brand Miller Genuine Draft, which will be sourced from its Tanzania's brewing plant. Crown Beverages are SABMiller's distributors in the Kenyan market, where they also have the Castle Lager brand. Crown beverages are the bottlers of Keringet drinking water.Renewed rivalry was sparked off by a re-purchase of 20 per cent stake by EABL in Kenya Breweries ending a marriage of convenience between the two competitors.The Kenyan based brewer received a concessionary loan from its anchor shareholders-Diageo International- for the repurchase deal ending speculation of a rights issue.

"Ending the binding arrangement they had with SABMiller allows them to be more aggressive," said Mwenda Rarama, an analyst at Kingdom Securities.

East Africa is increasingly becoming a battle zone between SABMiller and Diageo, majority shareholder of EABL.Already, a turf war is underway in Uganda between Uganda Breweries, owned 98.2 per cent by EABL, and Nile Breweries, which is 60 per cent owned by SABMiller.

In Tanzania, Diageo through EABL ended a partnership with SABMiller over the running of Tanzania Breweries Limited and bought a majority stake in rival Serengeti Breweries last year.

"TBL disposal will bring them a one-off gain while the purchase of Serengeti will raise its revenues in the long-term," said Mr Musau.EABL has also to contend with Dutch brewer Heineken who recently opened its regional headquarters in Nairobi and local brewer Keroche Industries.

EABL's net profit grew 2.4 per cent to Sh7.35 bn from Sh7.18 bn in 2010.

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