East African Breweries Ltd (NSE: EABL) posted a 11.3 percent drop in net profit for the half-year period ended 31st December 2017.
Profit after tax for the period was at KSh 4.95 Billion compared to KSh 5.59 Billion posted over the same period in December 2016 this was attributed to consumer weakness in the Kenyan market relating to the protracted election process.
Earnings Per Share (EPS) fell 11.3 per cent y/y to Ksh 5.21 in line with our estimates of Ksh 5.13. Headline revenue surprised, up 4.68 per cent y/y on 4.0 per cent higher volume.
As expected gross margins held at five year lows, 43.4 per cent due to increased revenue contribution from value brands. New product brands (Tusker Cider, Waragi, Chrome) supported revenue growth with an additional KES 7.6Bn (+21% y/y).
In the second half of the year, Kenya’s environment (75% contribution to Group sales) was weak affected by inflationary pressures which majorly impacted consumption of value brands as focus shifted to the cost of food items.
During this period food inflation hit highs of 13.57 per cent and 11.50 per cent in August and September, respectively.
Though inflationary pressures seem to have cooled off in January, we expect numbers for 2H18 to (at best) balance out 1H18 results for FY18, with the hindsight that the second half has comparatively been the weaker period. Despite the earnings weakness, the brewer has maintained the interim dividend at KES 2.00, payable by 20th April 2018.
The Board of Directors recommended an interim dividend of Kshs 2.00 per share for the half-year period.
Source Genghis Capital