What is SAB Miller?
SABMiller (SAB) is one of the world’s largest brewing firms with more than 200 beer brands. Globally its biggest brands are Pilsner Urquell, Peroni Nastro Azzuro, Miller and Grolsch and it owns many local brands. A substantial soft drinks business also makes it one of the world’s largest bottlers of Coca-Cola products. The firm has a 39.7% stake in South African Hotels and Tsogo Sun Gaming Group. Operating in more than 75 countries, total sales for SABMiller were $28.3bn in 2010/2011.
What is the company’s history?
South African Breweries (SAB) was founded in 1885 with the launch of Castle Lager in South Africa. It expanded into Rhodesia in 1910, but focused on its domestic market for most of the 20th century. Large investments in breweries, hotels and pubs during the late 1940s failed to pay off as the government imposed heavy taxes on beer in the 1950s and 1960s. The group became a conglomerate, diversifying into food, property, retailing, casinos, textiles, and soft drinks. With the end of apartheid it expanded abroad in the 1990s, selling most of its non-brewing businesses. The 2000s saw it become one of the world’s biggest brewers with the purchases of brands such as Grolsch alongside some large investments in emerging markets. In September 2011 it agreed to buy Australian brewer Foster’s Group for A$11.5bn.
Who runs it?
Graham Mackay has been chief executive since 1999 – he joined the company in 1978. His total pay was £3.4m in 2010/2011. Jamie Wilson is chief financial officer. Meyer Kahn is chairman.
How’s trading?
For the six months to September 2011, revenues and operating profit both increased by 10% to $15.7bn and $2.7bn respectively. Adjusted earnings per share increased by 11% to 103.3 US cents, while the interim dividend was raised by 10% to 21.5 US cents per share. Volume growth in emerging markets led to good profit increases in Latin America, Africa and Asia. These offset weaker trading conditions in Europe and North America.
What’s the outlook?
The strong trading conditions in emerging markets are expected to continue during the second half of the trading year. However, weak economies and strong competition remain a concern in both Europe and the US. The weakening of the South African rand against the US dollar may lead to lower rates of profit growth. Longer term, the acquisition of Fosters Group, with its strong position in the Australian beer market, makes strategic sense. However, the high price paid means that SABMiller will need to work very hard to generate acceptable returns from such a big initial outlay.
Our view
Despite attractive emerging-market exposure, the shares look fully priced at the moment. Hold.
Directors’ dealings
CEO Graham Mackay has sold 145,652 shares for a total consideration of £3.3m during the last six months. His remaining holdings are still worth about £33m. Non-executive directors John Manser and Geoffrey Bible respectively bought £104,000 and £1.2m worth of shares at the start of 2011. Management’s shareholdings are shown in the table.
G Mackay 1,537,375
M Bowman 68,323
J Davidson 69,312
A Mervis 193,340
N Adami 405,518
A Clark 101,610
N Fell 72,890
T van Kralingen 137,495
J Wilson 6,850
The analysts
Of the 28 analysts surveyed by Bloomberg, nine say “buy”, 14 “hold” and five “sell”. The average price target is 2,373p – 11% above the current share price. The most bullish is Shore Capital, which gives a 2,727p price target – whereas Société Générale is most bearish with a 1,880p target.
The numbers
Stockmarket code SAB
Share price 2,140p
Market cap £33.9bn
Net assets (September 2011) $22.5bn
Net debt (September 2011) $6.5bn
P/E (current year estimate) 16.1 times
Yield (prospective) 2.6%