From the results of Financial Year 2022 (FY22) and the most recent developments in the industry, we have estimated the target price. We recommend a BUY option on EABL with a value estimate of KES 194.96, representing an upward potential of 19.61% from the current market price of KES 199.75. We estimate the Fiscal Year 2023 (FY23) Earnings per Share (EPS) will grow by 22.45%y/y to KES 18.36. From this, the anticipated total dividend payout is KES 14.90 by the close of the financial year. From a broad perspective, we believe that this will be due to a smooth growth in net sales (+8.76% y/y) across all markets attributable to resumption to normalcy. However, the excise duty adjustments in the country might be a crosswind that will diminish the group’s earnings in the long run. Actually, we predict a +14.75% y/y rise in indirect taxes to KES 96.9Bn in FY23 - expected to grow exponentially to KES 168.0Bn in the year 2027. From this, we view that the exponential growth will be majorly due to the annual inflationary adjustment to excise tax in line with the provisions of the Excise Duty Act, 2015, and Miscellaneous Fees and Levies Act 2016.
On the regional performance front, we predict FY23 Kenya’s contribution to the group’s entire sales at 65.8% (KES 78.3Bn, +5.26%y/y) with Uganda and Tanzania at 18.8% (KES 22.4Bn, +13.75%y/y) and 15.4% (KES 18.3Bn,+19.36%y/y), respectively. We expect seeing Kenya’s aggregate contribution decline in the long run. This is mainly because of the notion that Kenya is a mature business, with Uganda and Tanzania posing more growth opportunities. Therefore, we predict FY27 maximum contribution at 53.8%, 23.1%, and 23.1% for Kenya, Uganda, and Tanzania, respectively.
With respect to expansion, we expect to see a high capital expenditure (capex) in the forecast period - mainly sponsored by long-term funding. We predict a 5-year capex spend of approx. KES 82.2Bn and approx. +30.8% in the period’s long-term liabilities compounded annual growth rate (CAGR). From our view, we believe that capex spending will be skewed toward capacity expansion. We see this presenting a strong case for healthy big numbers together with softening in the operating environment in the long run. The hypothesis is: As production rises, cost per unit diminishes whilst margins increase – a plus for the business.
On the growth front, we believe that the group has enough room to generate more value from its markets for two big reasons. (i) Kenya, Uganda and Tanzania’s population structures are broad-based pyramids - with a good number of their population below the age bracket of 20-24. This signals a potential expansion of the consumer base for the group in the long run. (ii) According to the latest provided metrics from World Health Organization (WHO), Kenya - the largest market served by the group - has one of the lowest alcohol per capita consumption of approx. 3.4 liters of pure alcohol per capita against WHO’s average for Africa of approx. 6.3 liters of pure alcohol per capita. With these numbers expected to rise in the long run, we will see an escalation in alcohol penetration thus a surge in the group’s revenues.
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