Despite a COVID delta variant marred 2021, Zambian Breweries Plc a subsidiary of South Africa’s AB InBev, was still able to deliver a 1,152% growth year on year in After Tax Profit (PAT) of K106.2 million ($5.8 million) supported by a 33.0% growth in revenues to K3.06 billion as sales scaled 15.0% higher. The beer producer recorded a 30% ebb in foreign exchange costs, 5.0% decline in fixed costs and a 444% spike in finance costs.
PERHAPS ZAMBREW STOCKS ARE OVERPRICED
ISIN:ZM0000000078 (ZMBRW) showed a Price Earnings (PE) ratio of 25.9 signaling stock overvaluation suggesting that they could be trading at an old enterprise value and further that management could be over banking on capacity expansion that growth in real demand. The audited financials also reflect a serious cash burn and pressure from the state to curb alcoholism. These factors such be significant growth hurdles.
DESPITE STRATEGIC INVESTMENTS SOCIAL PRESSURES AGAINST ALCOHOL ABUSE MOUNT
In equipping itself for future strategic intent, Zambrew has made some strategic investments such as in a B2B distributor, warehouse management system aimed at improving its distribution and inventory efficiencies and glass manufacture in addition to its continued expansion to ease the cost of package acquisitions. The company demonstrated exceptional cost containment while the 5% corporation tax ebb announced by the Zambian MinFin will cushion the breweries liquidity for reinvestment purposes.
Like any corporate entity threats are inevitable. As a ‘sin – stock’ Zambrew is exposed to significant social pressures whose risks categorization falls within the Environmental Social and Governance faculty (ESG). Pressure groups at national level advocating for a curb on alcoholism have emerged given its impact on the deterioration of societal fabric as a consequence of the spiraling alcohol uptake and abuse.
“Madam Speaker, government enacted the Narcortic Drugs and Psychotropic Substances Act No.35 of 2021 to regulate the use of these substances. Our administration will ensure that these pieces of legislation are effectively enforced. Madam Speaker, the fight against alcohol and substance abuse is not for government alone. Let us all get involved and help our fellow citizens, especially the youth. To parents, let us not neglect the responsibility of moulding our children into morally upright citizens. To the church and civil society and traditional leadership, let us all take interest and participate in the fight against this scourge. To the youth we urge you to refrain from abuse of drugs and alcohol,” President Hakainde Hichilema during his address of the nation on National Values.
It becomes critical that management address the measures in place to manage these risk types that have capacity to weigh share price. This could take the form of sustainable responsible investment in complementing state efforts in building rehabilitation centers for abusers.
Other key threats include the pandemic aftermath in the supply chains and Russia – Ukrainian war effects on soft commodity markets that have seen spikes in the price of wheat and barely. These are key inputs into production of alcoholic beverages and as such Zambrew is exposed to escalating input inflation as supply and demand factors roil. The genesis of the rate hike cycle in the US could potentially widen dollar denominated borrowing costs for Zambrew mismatched by local currency proceeds of sales.
The Kwacha Arbitrageur