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East African Breweries Ltd (NSE: EABL) Company Update and FY20 Pre-earnings Note

Ahead of EABL’s FY20 earnings on 30th July 2020 against a full year profit warning thanks to the ravaging impact of the coronavirus pandemic, we have reviewed our estimates and subsequently our target price.

• We estimate FY20 EPS to decline 26.3% y/y (KES 8.28) driven by 9.0% y/y drop in net revenue, on the back of weak second half (with closure of bars and social events) of mostly beer especially Senator Keg-the most reliant of on-premise consumption. Management had indicated spirits (better off-take) had shown promise but their c.25% contribution to revenue is unlikely to cushion total revenue against the drop in beer. Recovery is expected in 2H21 (Jan – Jun) due to the low base-effect and the assumption of full economic re-opening by Jan 2021.
• In mid-March, the pandemic cut short what could have been a sterling FY20. The business, heavily reliant on on-premise consumption will feel the heat of closure of bars and suspension of social events. We expect revenue loss of KES 15.0Bn from our pre-pandemic estimates for FY20. 

Recap of pre-pandemic (1H20): Estimates-beating performance, with beer rising the fastest (+12%) in over 4 years, spirits (+16%) and Tanzania (+26%). 

Against FY20 estimates, we maintain our BUY rating at a potential upside of 26.0%, backed by its current lower-than-average P/E of 13.4x against its expected superior ROE of 61.7%.