Our estimates peg FY17 EPS to grow slowly by 3.4% (KES 12.62 from KES 12.20 in FY16A), from sales of 70.6Bn (FY16A 64Bn).
We pegged sales growth from the strong performance of emerging beer and spirits segments during 1H17. Both segments grew 10.0% and 13.3% consecutively during the first half, with Senator Keg at 21% growth in net sales value.
We also expect margins to be stable, with operating margin expected to shift 1.9% to 28.1% and net margins to 14.1% (FY16A 12.0%).
Key events since our valuation
During the second half, there were 2 key events that we will consider in reviewing our valuation;
(1) Roll-over of the KES 5.0Bn first tranche of MTN bond and issue of the second tranche of KES 6.0Bn, under the MTN Bond programme. We expect this to see a more levered balance sheet and high interest costs.
(2) Commissioning of a new brewing plant in Kisumu at a CAPEX of KES 15Bn, expected to be operational in two years. The plant is expected to cater for the low-end beer segment, mainly Senator Keg.
Market multiples & Recommendation
The P/E ratio is 27.4X vs industry 26.7X (EV/EBITDA 12.1X vs industry 11.2X) indicative of a fair market valuation on the brewer, the basis of our HOLD recommendation (Target Price KES 255.84)