EAST AFRICA BREWERIES LIMITED: DIAGEO COMES CALLING DURING CENTENARY YEAR
Will investors pick up the phone?
Brief Introduction
East Africa Breweries Limited (EABL) is the biggest beer and spirits manufacturer in East Africa, the brewer has operations in Kenya, Uganda and Tanzania where it commands massive market share. Attached is a picture of EABL’s flagship beer Tusker Lager. The beer has a fanatical customer base in Kenya.
EABL turns 100 years this December. EABL's stock is publicly quoted on the Nairobi Securities Exchange under the ticker EABL:NSE. Diageo PLC is the anchor shareholder with a 50.03% stake.
THE OFFER: Diageo wants to increase its stake in EABL from 50.03% to 65% by acquiring an additional 15% via an open tender offer at an offer price of Ksh192 per share. If they succeed it will cost them a massive Ksh 22.7 Billion.
WHY NOW?
The beer wars with SAB Miller are well behind us,EABL has moved on and consolidated its market share in the fast growing East African beer market....in FY2022 Beer Volumes grew +22% y/y. There are paddlocks on local challenger Keroche Breweries factory doors…with limited competition in the foreseeable future…right now couldn't have made more sense!
The valuations are attractive...not so long ago this stock was trading on a single digit PE Ratio.
There might be a significant shareholder who needs this liquidity event to exit.
VALUATIONS: At the offer price of Ksh 192, Diageo is buying on a PE Ratio of 12.8 and a Price/Book Value ratio of 6. In this bear market buyers will be hard to come by at those valuations.
KEY DATES: Phase One of this offer opens on 30 January 2023 and will close on 17 February 2023. In case they dont fill theyre quota in Phase One, Phase 2 will open on 20 February 2023 and closes on 10 March 2023.
RECOMMENDATION: Pick up the phone call, thats what I will be doing!...this type of opportunities dont come by often, although EABL fundamentals are strong, one cant tell when it will trade at Ksh 192 again. Its also a nice speculative play...buy at Ksh161 sell at Ksh192...those are nice double digit returns net of transaction fees.