The Star (Nairobi)

18 February 2013

Kenya: A Look At EABL First Half Results Points to Brigther Days

EABL is the Tusker [elephant] at the Nairobi Securities Exchange. It has a market capitalisation of Sh233.278 billion which equates to $2.666b and of itself constitutes 16.1549 per cent of the capitalisation of the entire securities exchange.

Since the start of January 2012 through this morning, EABL has returned 76.453 per cent on a total return basis. The Nairobi All Share returned 58.136 per cent over the same period. EABL has outperformed the All Share by 1,831 basis points and 31.507 per cent.

That 31.507 per cent outperformance is the elusive Alpha, the holy grail of performance. For investors, EABL has been the sweetest of sweet spots and an iconic share in their portfolios.

Last week and ahead the release of EABL's first half earnings, four out of Diageo PLC's 16 executive member committee visited Nairobi. The COO, Ivan Menezes, Nick Blazquez, the president of Africa and a lot else, David Gosnell president of Global Supply and Procurement and Siobhan Moriarty, the General Counsel Designate.

I have previously mentioned my proprietary 'foot traffic' indicator [which tracks the global CEOs and senior management of international companies coming through Nairobi] and that indicator remains at its most elevated ever and since independence. I had a chance to have dinner with Devlin Hainsworth and the members of the Diageo executive committee and my take-away was that EABL was not some far flung piece of the empire, it has popped big onto Diageo's radar.

The commitment to EABL was rock solid as well it should be. EABL has been in the game for 91 years after all.On Friday morning I took myself off to the Serena to listen to the first half earnings release. Given that EABL represents 16.1549 per cent of the value of the entire Nairobi Securities Exchange, it is a big set piece moment.

Devlin Hainsworth, the CEO, has been in seat for just over seven months and has a very compelling gusto and momentum about him and his delivery. I find the study of body language as valuable as crunching the numbers and Devlin's body language is all about forward motion.

Even Chris Kirubi, who tends to ask the first question in the Q and A session, was taken by Devlin's delivery. I thank Devlin for the post results release interview and will publish it here http://www.rich.co.ke/rctools/richtvi.php imminently. It's well worth watching.

The headline H1 numbers read as follows, H1 revenue +10.28188% at Sh30.663 billion, profit from operations +7.467% at Sh7.858 billion, net finance costs increased to [Sh2.061 billion] +221% and that was correlated to the financing that was put on the balance sheet in order to buy back the 20 per cent of Kenya Breweries Shares.

Therefore, H1 profit before taxation was crimped by -13.088455% to Sh5.797 billion and for the most part by the financing. The business generated Sh7.424 billion of cash from operating activities during this reporting period. The reflexive reaction on Friday was to take profits at the Securities Exchange. EABL had set a succession of record highs through the end of 2012 and practically every other session in 2013.

Looking beneath the surface results noise, this is a muscular machine. EABL is doubling down and chasing growth as well they should. They have geographical reach. Kenya remains EABL's largest market by revenue and Kenya revenue grew 12%. Tanzania's Serengeti's revenue growth was faster still at +16% and had to hurdle increased taxes.

EABLi [the frontier piece of EABL's portfolio which includes Sudan, Rwanda, Burundi and DR Congo] accelerated 28%. Uganda at +3.00% was softer than the rest. The EAC is the 2nd fastest growing region in the world after ASEAN and EABL is in the saddle and riding this tiger.

The entire beer portfolio grew 11%. Spirits grew 9%. The premium spirits portfolio expanded an eye popping 45% and that speaks to the emerging and now emerged middle class in the region and the premiumisation opportunity. EABL's product range has breadth and depth.

From Senator beer to their new innovation Jebel Gin which to quote Joe Muganda the MD of Kenya Breweries is 'flying off the shelves' at the mass market price points to the iconic Tusker beer and Johnnie Walker brands, EABL is a business that is playing a long game and seeking to slake the thirst of East Africans and beyond.

EABL is playing an offensive game under its captain. Its doubling down on growth. The short term earnings noise is all about inflecting and steepening the earnings trajectory. Make no mistake about that. We will see new all time highs in the share price.

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