East African Breweries Ltd., Kenya’s best-performing stock over the past month, is poised to end a 29 percent rally that valued the nation’s biggest company at double that of the benchmark index, according to Contrarian Investing Kenya Ltd. and technical indicators.
The Diageo Plc (DGE) unit rose 1.6 percent to 391 shillings, extending a record 14-day winning streak and pushing the stock to its highest level since May 1997. The company’s relative strength index closed at 91, above the 70 level which signals a stock is overbought for the 10th day. East African Breweries is trading at 29 times earnings compared with 15 for the Nairobi Securities Exchange All-Share Index.
“There is nothing to justify the current valuation,” Davis Mika, an analyst at Nairobi-based Contrarian Investing Kenya Ltd., said by phone. “The rally could end anytime investors begin taking profits.”
East African Breweries has units in Uganda and Tanzania and exports to nations including Rwanda, Burundi, Democratic Republic of Congo and South Sudan. Nairobi’s benchmark stock gauge has gained 37 percent this year, the world’s third-best performing equity market. Kenya is an attractive entry point into Africa, Templeton Emerging Markets Group Chairman Mark Mobius said in an e-mailed statement on May 15.
“The rally is being driven by foreign investors who are targeting consumer stocks and the company is attractive because it covers a lot more markets than Kenya, all of which are growing,” Eric Musau, a research analyst at Nairobi-based Standard Investment Bank Ltd., said by phone. “EABL has been putting additional capacity in East Africa and the next point of expansion could be to target the central African market.”
Foreign investors accounted for half of all trades on the bourse last year, compared with 10 percent five year ago, according to data from the stock exchange. EABL has one buy, two sell and three hold ratings among analysts that have updated their recommendations on the stock since February, according to data compiled by Bloomberg.
“Unless we see a major seller the stock will mostly stabilize” at current levels, Musau said.
EABL Corporate Affairs Director Brenda Mbathi was not in her office and couldn’t immediately comment when called by Bloomberg.
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