E-Malt.com News article: UK & South Africa: SABMiller stock upgraded to ‘overweight’ after the purchase of Bavaria brewery in Peru

Amid increasingly uncertain markets, SABMiller continues to attract top line investor attention, with investment house Lehman Brothers upgrading the stock to “overweight” from “equal-weight”, arguing that the acquisition of South American brewer Bavaria could see SABMiller double profits in five years, MoneyWeb released September 06.

SABMiller, one of the world’s biggest brewers, has been on a global acquisition trail for years, such that the SABMiller arsenal now includes brewing or distribution agreements in 60 countries on five continents. In the broader sense, SABMiller counts among its rivals Anheuser-Busch (makers of Budweiser), InBev (the world’s biggest brewer by volume), Pernod Ricard, Diageo, and Heineken.

In line with the Lehman Brothers recommendation, investment house Dresdner Kleinwort says SABMiller remains a “strong top-line story”. Where global beer volume growth is around 2-3%, SABMiller’s volumes are growing by 4-6% and higher. Europe and North America generate about 10% profit growth a year, but in a recent presentation, SABMiller management said that it anticipated mid-teens profit growth in Latin America and 30-50% a year profit growth in China.

Some investment houses, such as UBS, are taking a more conservative view. In a recent note, UBS downgraded SABMiller to “neutral” from “buy” and cut its stock price target to 1 100 pence a share from 1 120 pence a share. By contrast, Lehman Brothers has lifted its price target on SABMiller to 1 200 from 980 pence a share.

In the early months of this year, SABMiller was one of the world’s favourite stocks, and then on May 10, the Federal Reserve, the US central bank, said a few hawkish things about interest rates. That triggered a sell-off of stocks, particularly in emerging markets, where SABMiller maintains a number of key operations, not least in South Africa and Colombia.

Investors dumped SABMiller’s stock like it was hot bricks; the stock declined from 1 200 pence a share (an all time record) early in May to less than 950 pence, a loss of more than 25% in just a few weeks. The stock is quoted in pence, following its primary listing on the London Stock Exchange. The stock has most recently traded up around 1 065 pence a share.

SABMiller had become something of a darling of the international investing community, after it showed early signs of turning its Miller acquisition in the US, something cynics had long declared to be a lost cause. But SABMiller’s global acquisition ambitions have continued at a rapid rate. Earlier this year, the group, which traces its roots back to South Africa, was given a kicker by its new $7,8bn Bavaria acquisition, based in Bogotá, Colombia.

The Sydney Morning Herald recently reported that InBev and SABMiller were mulling over the purchase of Foster’s, the well-known Melbourne-based brewer. Both InBev and SABMiller have been focusing on expanding exposures in the Asia-Pacific region and had recently invested billions to strengthen positions in the fast-growing Chinese and Indian beer markets.


08 September, 2006