21 November 2003 22:02
The Investment column: SABMiller too frothy for now
THE JURY is still out on last year's controversial pounds 3.6bn takeover of Miller by South African Breweries -
but the market is already betting on a not guilty verdict.
There were some undeniably good results from the combined SABMiller yesterday. The group has an impressive spread of
interests across the globe, and European brands including the Czech Pilsner Urquell and Miller Genuine Draft in Russia
performed exceptionally well. Together with the benefits of currency movements (notably the strengthening South African
rand), earnings in dollar terms were up a stonking 55 per cent in the six months to September. There was even optimistic
noises on the troublesome central American soft drinks business, where the arrival of Pepsi has increased competition
and taken the fizz out of profits.
However, the audacious merger stands or falls on the management's ability to put their talents successfully to
work on Miller. This is a brand that has lost its way in the US, where it is number two to the mighty Budweiser, and
volumes in the half-year were down 6 per cent. No sign of things getting better. Indeed, the company has warned
investors it will take three years to turn things around. It has made a start by launching ad campaigns that talk up
Genuine Draft's unique flavour or Miller Lite's low-carbohydrate attractions. There will also be efforts to
incentivise managers and improve distribution. Many think the recovery is a shoo-in, but Miller is a heavier beer than
Bud and drinkers' tastes may just have changed. In a flattish US beer market, SABMiller has plenty to prove.
If one is accentuating the negative, the slower growth affecting the mid-market in Russia may soon extend to the
premium beer market SABMiller operates in. Then there is the company's dependence on the ex-growth South African
market. And Miller's former owner, Philip Morris, still holds 36 per cent of the shares and may start to dribble
them on to the market from 2005.
We were not believers in the merger at the time but we did miss a trick when repeating our "avoid" advice
in April. Now on 14 times current year earnings, SABMiller shares look too expensive again.
[UKIR [UK & Ireland Intelligence Wire]] |
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