EABL: Ride the Foreign Wave

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I had to start with a ‘promotion’ of the brand. 🙂 Now that I have your attention…

Did you know??

The World population is becoming more and more THIRSTY!

With a 1 billion liter increase in the amount of alcohol consumed in 2014 , there is no wonder why the alcoholic industry is a $1,200 billion global industry. Even with an average decline in alcohol consumption in developed countries, the industry reigns supreme with massive opportunities in emerging markets such as Africa.(This.Is.Africa)

On the back of emerging markets as a final frontier, the global alcohol industry is expected to grow at a CAGR of 3.2% between 2015 and 2020 to a whopping $1,451 billion industry

Fundamentally, I would price the stock at Ksh 214.34. I conducted a valuation analysis on the company and you can read my coverage report on the company here:

East African Breweries Limited Initiation Coverage Report – March 2016

EABLs primary focus is in the East African markets where it continues to grow and relentlessly gain market share. With an average gross profit margin of 48.69%, a shift in consumer tastes towards the more profitable spirits portfolio as seen by the financial results for the first half of 2016 that saw its reserve and mainstream segments grow at impressive double digits and a rise in aspirational drinking – EABL has an opportunity to exploit these dynamic developments and boost sales revenue. And with this they continue to do by swiftly implementing these changes to their business model and aggressively targeting new drinkers while retaining the ‘older’ ones.

Gross Margin TTM Operating Margin Profit Margin TTM P/E ROE
Global Industry Average 47.83 18.10 11.38 26.96 20.58
Nigerian Breweries PLC 48.11 25.10 13.55 19.29 27.87
EABL 49.72 25.73 13.90 24.22 78.84

Source:Bloomberg

Comparatively, EABL performs fairly better by global industry standards and compared to Nigerian Breweries (a peer in Africa). The ratios also echo the fact that emerging markets such as Africa are a final frontier for global alcohol brewing companies and thus the rush and aggressiveness they have to get into these market

All that being said, it is important for you to get a better understanding of the company fundamentally by reading my coverage report here:

East African Breweries Limited Initiation Coverage Report – March 2016

Investors need to understand what drives the share price performance for the company and I believe this is purely led by foreign players who consider it to be the ‘apple of their eye’.

It is no secret that EABL is a darling stock for foreign investors and its day to day foreign to local participation reveals this.

Over 60% of the activity on the EABL stock is driven by foreign investors who trade large volumes, keeping the price between an average of Ksh 260 and Ksh 300.

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In my opinion, ride the foreign wave buy at lows of Ksh 260 and sell at highs of 300.  Foreigner investors tend to push the price up then dispose of the stock bringing the price down.

However, be wary not to get caught up as these foreign investors trade the stock in large volumes so if you are a high net worth investor looking to acquire large volumes of this stock – this stock is for you because you are more likely to get demand or supply for the stock once you are ready to sell or buy.

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