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Diageo : Kenyan brewer EABL looks to scotch, low-priced beer to counter tax rises

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07/26/2019 | 07:03am EDT
FILE PHOTO: Crates of beer are transported on a folklift from the production line inside the East African Breweries Limited factory in Ruaraka factory in Nairobi

NAIROBI (Reuters) - Kenya's East African Breweries is counting on surging demand for its low-priced Senator Keg beer and also scotch whiskey to counter the impact of tax increases, its chief executive said on Friday.

The brewer, which is controlled by British drinks group Diageo, on Thursday reported a 52% jump in pretax profit for the year to June as volumes grew 11% and sales surged 12%.

The strong performance partly reflected much weaker comparatives for previous financial year, as well as a stable business environment and higher production capacity.

But a plan by Kenya's government to increase excise duty on spirits by 15% in September, well above the inflation rate of 5%, could cloud the company's outlook.

"(This) is why we have got some time to try and have the debate with our stakeholders in government as to the wisdom of such a significant increase," Andrew Cowan, East African Breweries' CEO, told Reuters after an investor briefing.

Sales of Senator Keg, a low-priced lager made from locally grown sorghum, rose by close to a third in the last financial year, which will help to offset the impact of higher taxes from September.

Senator Keg has been one of the fastest growing brands for EABL in recent years due to huge demand from price-sensitive consumers, some of whom have been switching to branded beer from home brews, some of which are illegal.

A new Senator Keg plant in the western city of Kisumu is expected to double output to full capacity by year-end, the CEO said.

Cowan said growing demand for scotch whiskey like Johnny Walker and Singleton among consumers could also counter the potential headwinds for the business from the taxes.

"There is a wonderment about scotch... consumers find it very aspirational and very cool to be seen to be drinking scotch," he said.

(Editing by Jane Merriman)

By Duncan Miriri

Stocks treated in this article : Diageo, East African Breweries Ltd
Stocks mentioned in the article
ChangeLast1st jan.
DIAGEO 2.38% 3317.5 Delayed Quote.18.89%
EAST AFRICAN BREWERIES LTD End-of-day quote.
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Financials (GBP)
Sales 2020 13 694 M
EBIT 2020 4 448 M
Net income 2020 3 314 M
Debt 2020 11 199 M
Yield 2020 2,21%
P/E ratio 2020 23,6x
P/E ratio 2021 21,8x
EV / Sales2020 6,56x
EV / Sales2021 6,26x
Capitalization 78 686 M
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Mean consensus OUTPERFORM
Number of Analysts 27
Average target price 3 400,96  GBp
Last Close Price 3 323,00  GBp
Spread / Highest target 16,5%
Spread / Average Target 2,35%
Spread / Lowest Target -15,7%
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Ivan M. Menezes Chief Executive Officer & Executive Director
Javier Ferrán Chairman
Kathryn A. Mikells Chief Financial Officer & Executive Director
Evan Mervyn Davies Senior Independent Non-Executive Director
Kwon Ping Ho Independent Non-Executive Director
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