SABMiller upbeat on full-year prospects

SABMiller upbeat on full-year prospects

Asia and Africa are making the headlines for SABMiller in its current fiscal year, but analysts are just as keen on how the brewer is coping with weak demand in Europe and the Americas.

There could be a great wall blocking China's ascension to economic supremity, but that's for another day. Right now, the sun is shining on the country and the beer (not to mention Cognac) is flowing. This week, SABMiller reported a 16% rise in lager sales by volume in China. Alongside strong momentum in much of Africa, this helped the brewer to forget about those consumers drinking less of its beers in Eastern Europe and the Americas. Its global lager volumes increased by 3% in the third quarter, the final three months of calendar 2010.

The Peroni brewer's results beat consensus estimates and put most analysts in a good mood.

"We consider the SABMiller results another validation of emerging market growth stocks," said analysts at Stifel Nicolaus, following the results. Morningstar analyst Philip Gorham extolled the virtues of Asia and Africa, where volumes rose by 12%. "We think both regions present attractive long-term opportunities for SABMiller, with large sections of these markets yet to trade up to branded beer," he said.
While it would be easy to present yet another tribute to consumer aspirations in relatively poor countries, it would be fairer to look at SABMiller's performance in more troublesome pockets of the world.

Many analysts were just as happy that the brewer performed ahead of their expectations in tough markets, despite failing to sell more beer in most of them. "The beat stems from a better-than-expected performance in Colombia, which was down only 5% vs our expectation of -10%, and Russia," said Sanford Bernstein.

It also focused on signs of improvement at SABMiller's joint venture with Molson Coors in the US, MillerCoors, even though volume sales to retailers fell by 2.5% in the third quarter. "This is a sequential improvement from the 4% decline in the prior quarter and fits with steadily improving trends in US beer shipments," said Bernstein.

"We see more evidence that industry volume declines are moderating while mix is improving," said Stifel. Both it and Bernstein highlighted strong growth for MillerCoors' new craft and imported beer business, Tenth & Blake.

Bernstein added that SABMiller's profits will likely show stronger growth in the second half of its fiscal year, compared to the first, mainly due to cost savings and currency gains. Evolution Securities added that news of a 3% rise in net sales per hectolitre in the third quarter could lead to higher earnings forecasts for the brewer's full-year. 

Some observers argued, however, that SABMiller's share price looks overweight considering the risks in North America in particular. "We expect premiumisation and per capita consumption growth in emerging markets to drive growth, but increasing volume and raising prices will be difficult in mature markets," said Gorham.

"With the stock trading at 18 times our estimate of fiscal 2011 earnings, we think the market is overlooking the prolonged impact that high unemployment, austerity measures, and rising gas prices will have on mature markets, as well as the structural decline of mass-produced brands in the US."

SABMiller's share price initially rose by 1.5% after its third quarter announcement, but has since slipped back. While appearing to be encouraging, then, there remains a fragility to the brewer's prospects.