Anheuser Busch InBev local subsidiary, Zambian Breweries Plc recorded a 242% rally in net earnings to K249 million for first half of 2023. The strong performance was fueled by increased pricing without loss of sales volume and cost efficiencies exhibited by a higher gross, operational and net margins, a testament of post pandemic recovery. Sales grew 12.3% to K1.84 billion as volumes infinitesimally edged higher 0.3%.
Business operations in the copper producer post COVID has seen recovery in both the recreation and hospitality industries whose sales pulse has rebounded. Zambian Breweries has seen premium product growth which continues to enable the company’s inflation survival by leaning on its pricing power as opposed to the quagmire that price sensitive opaque beer manufacturers finds themselves in.
PROFITS GIVE STOCK PRICE A POSITIVE CUE
The stellar performance also does give the stock price a positive cue in a healthier price earnings (P/E) ratio which has ebbed to 7.68, which is less than 17% over the 6.38 benchmark to be slightly but not grossly overpriced as was the case in the previous reporting cycles.
Company outlook is positive supported by completion of its plant expansion program that is set to double its production capacity and thus improve its top-line growth and future profitability. Zambrew shares which had been previously overpriced and rated sell or at best a hold-sell, have now graduated to a tentative buy due to improved 1H23 Performance.
With improved margins, P/E ratios, plant expansion and ESG Investments, Zambrew stock continues to show promising momentum.
BIG ON SUSTAINABILITY INVESTMENTS
Zambrew has been made significant sustainability investments in the area of water stewardship, recyclable packaging, alcohol abuse interventions and launch of cassava based brands such as Mosi Lite.
EXO AND ENDOGENOUS HEADWINDS
As expected in any business environment, the company faces an array of headwinds that it continues to navigate. Key threats include rising inflation as food prices and cost push effects persist in the wake of currency volatility and geopolitically induced higher wheat and barley prices. Monetary tightening globally and domestically are other headwinds the subsidiary faces in higher Kwacha and dollar borrowing costs. In the interim the current and potential growth in sales plus in addition to cost containment does offer ann effective hedge for these risks to the bottom line.
Zambian Breweries last declared a dividend in the FY19/20 season which investors will eagerly seek clues as to whether or not the entity does declare payouts given such stellar performance.
The Kwacha Arbitrageur
