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In the Spotlight – SABMiller H1

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Analysts and investors raised a toast to SABMiller's half-year results yesterday (19 November), despite a 26% drop in pre-tax profits, reports Michelle Russell.

The results beat analyst expectations and shares in the world's second-biggest brewer received a boost as investors welcomed a robust outlook for the second half.

Shares rose GBP0.57, or 3.4%, to GBP17.14 in London trading yesterday, the biggest gain in the benchmark FTSE 100 Index, according to Bloomberg.

The stock has risen 49% in 2009, and now trades at more than a 5% premium to peers, according to UBS AG. The results "justify that premium," Trevor Stirling, an analyst at Sanford Bernstein said on Thursday.

The brewer of Miller, Peroni and Grolsh said the strength of the dollar caused first-half pre-tax profits to slide to US$1.5bn, but analysts hailed the results "outstanding", nonetheless.

Matthew Webb, an analyst at brokerage Cazenove, said: "An outstanding set of H1 results from SABMiller, 17% ahead of our forecast at the EPS level … we expect the shares to go higher despite their recent strong run."

Webb said he was provisionally upgrading his earnings forecast for the current year to March 2010 and March 2011 by 6%, noting that the global brewer was navigating the recession successfully.

Chris Pitcher at broker Redburn Partners added: "SABMiller trades on a 10% premium to the sector, which is more than justified by the strong results and the long-term potential of the business."

The group also announced a four-year restructuring programme yesterday in a bid to "streamline" finance, human resources and procurement activities, in the hope of saving $300m a year by 2014.

Job cuts are expected across the SABMiller's global business, but group CEO Graham Mackay insisted to just-drinks in a conference call for media that cuts "will not be significant" and are not the main focus of the plan.

"The underlying performance was stronger than expected, and the big news was the $300m plan," said Stirling. "SAB have always been pretty efficient on a country-by-country basis. What they are doing now is globalizing their IT systems to take out cost."

However, the analyst added that while the cost cutting programme will enable further savings such as moving to global purchasing rather than regionally-led purchasing and further outsourcing opportunities, the programme will actually cost around $800m, with a $370m extraordinary charge in F10.

While pre-tax profit slipped yesterday, earnings before interest, taxes and amortization also fell, by 1.7% to $2.19bn, exceeding the $2.13bn median estimate of ten analysts surveyed by Bloomberg.

Net sales dropped 6% to $13.3bn for the six months to the end of September, after unfavourable currency rates dragged the figure down from $14.2bn in the same period of last year. The fall however, was boosted by cost savings and price rises in the beer SAB brews.

SABMiller, which earns nearly 90% of its profits from emerging markets such as South Africa, Colombia, Poland and China, has been tipped as the front-runner to buy Mexico's second-biggest brewer, FEMSA Cerveza.

"SABMiller has a very broad geographic footprint with 84% of EBITA coming from high growth emerging markets," Stirling wrote. "This high exposure to growth markets plus considerable acquisition synergies has enabled SABMiller to post double-digit organic profit growth, and is the driver of our estimates for long-term growth," he added.

A bid for the brewer of Sol and Tecate beers, would increase the company's size and the company is already focused on developing countries.

However, Mackay declined to comment on whether SAB would make an offer, but added that the company was committed to growing through acquisitions which gave "value growth opportunities".

Nonetheless, the better-than-expected results have helped the brewer surpass Diageo as the largest UK drinks company by market value at GBP28.3bn, while Diageo's market value has sank to GBP25.5bn.

"Going forward, we expect a further acceleration in performance," Stirling said.


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