Headwinds in Africa for SABMiller
City Index April 15, 2014 10:19 PM
<p>Shares of SABMiller declined (down around 2% at time of writing) following the company’s fourth quarter trading update. The brewer reported a 2% increase in […]</p>
Shares of SABMiller declined (down around 2% at time of writing) following the company’s fourth quarter trading update.
The brewer reported a 2% increase in revenue in the fourth quarter – revenue growth for full year came in at 3%.
Total beverage volumes increased by 2% for the full year, with lager volumes up 1% and soft drink volumes increasing 5%.
On a regional basis, revenue from the Peroni maker’s European and North American businesses were flat, while both Latin America and Africa saw growth of 5% and Asia Pacific grew 4%.
In addition to the update, SABMiller announced that it’s currently reviewing strategic options for its 39.6% stake (worth around £1bn) in South Africa-based Tsogo Sun, operator of hotels and casinos.
Regarding the results, the company did indeed manage to report some overall growth, but near-term challenges meant that it was below expectations.
SABMiller’s emerging markets challenges
SABMiller’s exposure to emerging markets, which has helped offset sluggish growth in Europe and North America, have long since helped drive good growth at the company.
Recent conditions in emerging markets, however, have introduced headwinds: the company has, on a number of occasions, warned about the negative impact on its full-year results due to adverse foreign currency movement.
That’s aside from a slowdown in Africa. For instance, challenging economic conditions in South Africa were partly to blame for flat soft drinks volumes for the year in the region.
Meanwhile, the weak economy in Zimbabwe saw lager volumes there drop 18% in the fourth quarter. Not to mention political tensions in Mozambique – this was attributed to the 2% decline in lager volumes there.
These concerns are likely to linger for the time being, despite the company’s solid long-term prospects.
That has the potential to affect its valuation. Currently, SABMiller enjoys a premium over its peers, sporting a valuation of some 22x expected 2014 earnings.
That’s ahead of competitors, the likes of Anheuser-Busch InBev (AB InBev), which trades at 20x expected 2014 earnings and Diageo at 19x.
Of course, recurring speculation regarding a potential takeover of SABMiller by larger rival AB InBev has offered support to SABMiller’s valuation but current concerns will likely weigh on it in the near term.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.