Afdis profits to jump 15 percent

HARARE - Spirit maker African Distillers Limited (Afdis) is expected to increase its profits in the half year to December by 15 percent to $2,3 million from $2,08 million recorded in the full year to June 2014, market experts say.

EFE Securities say the Zimbabwe Stock Exchange-listed wines maker will likely achieve revenues of $25,2 million from $23,9 million recorded in the 12 months to June 2014 due to product portfolio expansion as well as product mix rejiggering.

Early this year, Afdis embarked on a $5 million recapitalisation programme and channelled the proceeds towards plant purchase for the localisation of ciders production.

“Since retooling, the company has been able to shift from an import reliance business model to creating a balance between the two while eventually skewing it towards the domestic front as envisaged by the 22 percent growth to 71 percent in the local portfolio contribution to turnover.

“This has ignited firmer gross margins as local produce does not attract excise duty,” said EFE Securities in a report.

The equities research firm noted that Afdis’ envisaged product portfolio expansion sets a platform for future growth.

“This is only but a harbinger for better things ahead more-so with the better margins on the local brands,” read part of the report.

In valuing Afdis, EFE Securities assumed a five percent growth in the topline which is a slightly slower growth than the recent years owing to the improved base as well as the slowing demand in the economy.

“Leveraging on emerging favourable gross margins with the shift of the portfolio skew towards local produce we forecast 50 percent gross margins.

“The company exhibited ability to stably grow margins in the past three years which augurs well with global benchmarks for spirit makers averaging 55 percent for gross profit margins,” said the research firm.

“This therefore places a gross profit forecast of $12,6 million and from these we expect the company to achieve attributable earnings of $2,3 million.

“Based on the average P/E multiple for African brewers of 32x discounted 34 percent to 21 percent for the constraints on the demand side in the local economy, we value the company Afdis at $48,3 million,” said EFE Securities.

In the full year to June, Afdis’ volumes at 6,1 million litres grew 10 percent on prior year, while local product portfolio contributed 71 percent, up from 58 percent last year.

Industry experts say growth was driven by firm demand for brown spirits in the second half of the year.

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