Merrill Lynch has reviewed its rating for several brewers. The broker has upgraded its coverage of Heineken, Scottish & Newcastle and Carlsberg to 'buy,' while reducing InBev to 'sell'.

Going forward, Heineken will have further cost saving opportunities, Merrill Lynch noted, while estimating Heineken's combined Western, Central and Eastern European fixed cash costs at EUR1.9bn, implying EUR280m gross cost saving potential. The broker has a EUR34 target price on the brewer.

Of the European brewers, the broker said that S&N has been the least acquisitive in the last two years and it has the highest dividend payout ratio and dividend yield in the sector. S&N's joint venture with Carlsberg, Baltic Beverages Holding, will benefit from the proposed Baltika merger, Merrill said, while noting that strong oil prices should sustain the Russian market and currency. The brewer remains a viable bid target for any of the brewing heavyweights, the broker said, keeping a price target for S&N of 540 pence.

The positive position of BBH also supports Merrill Lynch's 'buy' rating on Carlsberg, as the broker added that the Danish brewer could have further cost saving opportunities on an estimated western Europe fixed cash cost base of DKK7bn at the end of this year. The broker has a target price of DKK420 on Carlsberg.

InBev was downgraded purely on valuation grounds, Merrill Lynch said, highlighting that the company's stock is trading at a premium to both its 2005 and 2006 fair values of EUR34 and EUR36 per share respectively.

Finally, the broker maintained its 'neutral' rating and fair value target of 1,170 pence on SABMiller.