Capital Gain

Easing of restrictions set to lift EABL sales

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Easing of restrictions set to lift EABL sales


EABL plant in Ruaraka, Nairobi. FILE PHOTO | NMG

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Summary

  • The analysts however warn that falling tax revenues may see the government target alcoholic products with additional taxes which might dampen the company’s earnings outlook.
  • Restrictions on social events hit EABL hard as revenues fell 9.0 per cent year on year and net profit declined 39 per cent to Sh7 billion.

East African Breweries Limited #ticker:EABL (EABL) is expected to record up to 63 per cent recovery of its revenues on Senator Keg and other beer brand sales following the loosening of coronavirus restrictions, according to a research by Genghis Capital.

The analysts however warn that falling tax revenues may see the government target alcoholic products with additional taxes which might dampen the company’s earnings outlook.

Restrictions on social events hit EABL hard as revenues fell 9.0 per cent year on year and net profit declined 39 per cent to Sh7 billion.

Following the re-opening of the economy, coronavirus containment restrictions were lifted, bars’ operations and limited social activity has resumed although under strict timelines.

“Re-opening of bars is expected to have kick started sit-in consumption of bottled beer and Senator Keg. Spirits were resilient during the prior period with volumes supported by take-away,” Genghis Capital’s Churchill Ogutu said.

“However, key risk is random tax adjustments by government which is expected to dampen especially the double-digit growth in the spirits portfolio. The government is increasingly looking for funding of its large deficit and its one soft target has been alcoholic products.”

Mr Ogutu said they expect strong revenue growth going forward driven by additional volumes of Senator Keg following the commissioning of the one million hectoliter capacity in Kisumu brewery as well as strong performance of Serengeti Lite in Tanzania.

Lockdown measures and curfew forced restaurants to shut down or operate sub-optimally while shoppers limited expenditure to essentials which has affected revenue collection by the Kenya Revenue Authority.

Exchequer collections fell 15.03 per cent, or Sh33.27 billion, in the first two months of this fiscal year to Sh188.08 billion on prolonged knock-on effects of the Covid-19 containment measures on economic activity.



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