East Africa is once again in the wars. The fight for market share in the beer industry over the past few years has produced a set of peculiar financial data that could define decisions for investors.

A look at the latest data for the three listed brewers in the region — East African Breweries Ltd (EABL) in Kenya, Tanzania Breweries Ltd (TBL) and Rwanda’s Bralirwa — shows powerful performances in key indicators such as profitability, stock valuations, dividend payouts and earnings per share.

As such, beer stocks have emerged a top target for investors looking for big stockmarket gains in a battle pitting the world’s biggest brewers — Heineken, Diageo and SABMiller. The thirst for beer is surging in the EAC market, where consumption is estimated to be growing by at least 10 per cent annually.

READ: Brewers bring beer fight to East Africa

So among the beer stocks, which should an investor go for?

Financial data for SABMiller’s Nile Breweries Ltd — with market share standing at about 52 per cent in Uganda — was not available as the firm is not listed. Among those listed, annual reports showed that for the first time in over eight years, TBL dethroned EABL as the region’s most profitable brewer in the past year.

TBL, which is majority owned by SABMiller, saw its net earnings rise by six per cent to Tsh177.12 billion ($111.36 million) for the full year ended March 2013, from Tsh166.41 billion ($105 million) posted in the same period last year.

READ: Tanzania Breweries increases dividend payout by 50pc

EABL, which is owned by Diageo, saw its net profits drop by 37.92 per cent to Ksh6.9 billion ($80.7 million) for the year ending June 2013, from Ksh11.18 billion ($132.7 million) last year.

READ: Sobering dip in profits for giant brewer EABL

Bralirwa, which is controlled by Dutch brewer Heineken, posted a 29.81 per cent growth in profit after tax to Rwf19.02 billion ($30.18 million) for the period ended December 2012, from Rwf14.65 billion ($24.2 million) posted for the period ended December 2011.

READ: Bralirwa set to pay out higher dividends

Bralirwa emerged as the best performing beer counter between January and September, even as analysts expressed a preference for TBL, citing the relatively cheaper valuation on the counter.

The Rwandan beer maker’s shares rose 34 per cent in the first nine months of this year, pipping both TBL and EABL, which gained 26 and 24.15 per cent respectively.

Analysts say that although TBL shares lagged behind Bralirwa, its stock was relatively cheaper and had posted stronger performances while EABL’s, which gave investors the lowest return, is the most expensive.

EABL is however the biggest brewer in terms of asset size and operates in more markets, making the share less prone to market concentration risks.

“From a total return perspective, TBL and Bralirwa have done quite well and in terms of capital gains, Bralirwa has been the best,” said Vimal Parmar, head of equity research at Burbidge Capital.

Market watchers say TBL offers an attractive entry point, citing the relatively lower valuation multiplies as well more room for growth.

TBL’s price to earnings ratio — the ration of the share price to the earnings per share — as at the end of the full year ending March 2013 stood at 5.34, making it the cheapest stock among the region’s listed brewers.

Braliwa’s price earnings ratio was 16.67, as at the end of the full year ended December 2012, compared with EABL’s 38.72 at the end of the full year ended June 2013.

“Bralirwa and TBL have more upside potential when compared with EABL,” said Mr Parmar.

Alcohol markets

Researchers at UBS, Switzerland’s largest bank, have singled out Uganda and Tanzania as being among the fastest growing alcohol markets globally.

UBS said in a research note that over the next four years, Uganda’s beer consumption by volume is expected to grow by a cumulative annual growth rate of 8.6 per cent, while that of Tanzania is expected to grow by 8.4 per cent — among the highest growth rates for beer consumption globally.

READ: Battle of the beers: Uganda firms fight to dominate market

Kenya consumes by far the largest proportion of beer in the region — 44 per cent of the country’s total alcohol consumption — compared with an average of 10.5 per cent across the other four East African countries.

The same pattern applies for spirits. Kenyans’ average consumption is 27 per cent of total consumption, compared with just two per cent for the other East African countries.

According to the recently released WHO Global Status Report on Alcohol and Health, East Africa, excluding Kenya, is fairly homogenous in alcohol consumption patterns, primarily consuming fermented beverages made from sorghum, maize and millet.

Uganda leads the region in alcohol consumption per capita: 11.9 litres of pure alcohol is consumed every year per capita, compared with an African average of 6.2 litres. Rwanda follows at 9.8 litres, Burundi at 9.5 litres and Tanzania at 6.8 litres.

But a bottle of beer is still far out of the reach of an average citizen — UBS highlights that it takes about three hours of work to buy a 500ml bottle of beer in Africa, compared with a global average of just 20 minutes. The US is the world’s most affordable market for beer consumers, where it takes just five minutes of work to afford half a litre of beer.

Analysts at Standard Investment Bank, AIB Capital and Old Mutual Securities are among those who have placed the fair value of the EABL share below what it is currently trading at.

Foreign investors looking at building their exposure to the African beer market have found it easier to invest in EABL than TBL. This is because, the Nairobi Securities Exchange is a much more liquid market for investors to buy and sell shares when compared with the Dar es Salaam Stock Exchange.

“For a long-term investor, TBL is the pick. The market price is hugely discounted,” said Eric Munywoki, an analyst at Old Mutual Securities.

“When you purchase EABL’s shares, though, you are literally buying exposure to the whole region, something that the other brewer’s do not offer,” he added.

TBL paid a total dividend of Tsh300 ($0.19) per share compared with Bralirwa’s Rwf20 ($0.03) and EABL’s Ksh5.50 ($0.06).

TBL last traded at the DSE at Tsh3,780 ($2.35) compared with Bralirwa’s Rwf845 ($1.28) at the Rwanda Stock Exchange and EABL’s Ksh339 ($3.91) at the NSE.

However, despite the share price appreciation since the beginning of this year, TBL still has the lowest price to earnings ratio.

“EABL remains supremely overvalued and has proven resilient even in the wake of a poor 2013 financial performance. It however has operations in more than one country and is less exposed to inherent market risks of any one specific nation,” said Ted Macharia, an investment analyst with AIB Capital.

Mr Macharia said that the growing middle class has extended to the spirits segment, with EABL posting stronger growth in the premium spirit brands as compared with the beer brands.

He said that input costs, particularly in Kenya, have resulted in upward price reviews and this is expected to result in slower growth in the immediate future.

The other brewers in the region have also been under pressure in recent months as a result of a combination of higher taxes and increased competition.

This week, EABL doubled the price of its keg beer in the wake of a new tax measure introduced in the budget. The low end beer was previously exempt from excise duty but now attracts 50 per cent excise tax or Ksh35 ($0.40) a litre, raising the cost of a barrel of Senator Keg to Ksh6,544 ($75.40), from Ksh3,146 ($36.25).