Diageo deal signals EABL is undervalued

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Capital markets

Diageo deal signals EABL is undervalued


Beer production line at EABL factory in Ruaraka, Nairobi on October 9, 2019. PHOTO | JEFF ANGOTE | NMG

British multinational Diageo Plc’s proposed purchase of additional shares in EABL values ​​the company at 151 billion shillings, signaling the brewer’s undervaluation at the prevailing market price before the announcement.

Diageo Plc, which is listed on the London Stock Exchange, said in a notice on Friday that it was looking to increase its stake in EABL – which is held through a wholly owned subsidiary known as Diageo Kenya – from 50.03% to 65%, via the purchase of 118.39 million additional shares of the company at a price of 192 shillings per share.

Diageo Kenya, which owns 395.6 million shares in EABL, will pay 22.7 billion shillings for the additional stake, which it plans to purchase in two phases between January 30, 2023 and February 7, 2023. and February 20 and March 10, 2023. .

Lily: British firm Diageo seeks additional 22.7 billion shillings stake in EABL

EABL’s share price stood at 138 shillings on Thursday, the last trading session before the disclosure of Diageo’s offer, which valued the company at 109.1 billion shillings.

This means that Diageo’s offer price represents a premium of more than 42 billion shillings over EABL’s pre-disclosure valuation.

In Friday’s trading, the share price rose 23% to 170 shillings – valuing the brewer at 134.4 billion shillings – following the announcement, which also meant the removal of the daily cap 10% on the stock price movement on the NSE on the day.

“The offer price represents a premium to the volume-weighted average price (VWAP) at which EABL shares traded on NSE days through October 12 … of 31.4% over VWAP. the last 30 days; 42.5% over the last 90 days VWAP and a premium of 33.5% over the last 180 days VWAP,” Diageo said in its notice.

Diageo’s willingness to offer a steep premium on EABL shares indicates the company sees an undervaluation in the stock, but also an intention to take advantage of lower NSE prices to strengthen its grip on the brewer. .

EABL has been one of the most profitable listed companies in Kenya, offering a stable dividend policy due to the maturity of its business in terms of capital investments.

The brewer doubled its net profit to 15.57 billion shillings in the financial year ending June 2022, helped by increased sales, which enabled it to pay an annual dividend of 11 shillings per share.

Lily: EABL pays 7.25 shillings more in final dividend after doubling net profit

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