Stock price: p1957 ($29.90 USD)
Conclusion: A slow start for SAB Miller (OTCPK:SBMRY) this year, which was expected. We keep our EPS and valuation range unchanged at p1900-p2000 per share. We think Heineken (OTC:HINKY) offers better upside potential in the sector.
Q1 ended 30 June: lager and soft drinks volume down 1%. No guidance given for F11.
Notwithstanding a slow start, we expect volumes to turn positive this year
- the slight decline in Q1 was expected. The timing of Easter (South Africa), poor weather and excise increases (Colombia, Eastern Europe) held volume back in Q1.
- Volume growth resumed in June.
- We think +1.9% is still feasible owing to positive volumes in Africa (+7% in Q1), South Africa (flat Q1), Latam (+1%) and Asia (+4%) which will offset further decline in Europe (-9% in Q1) and in the US (-2.4% in Q1).
Positive pricing and lower input costs bode well for margin
- Management confirmed positive pricing combined with some reductions in raw material input costs early this year. We look for +2.5% price increases vs +3.9% last year.
- In addition, costs savings at MillerCoors added to the business capability programme should help to accelerate margins gains (+110bp on our estimates vs +30bp in F10)
- We expect EPS to reach $1.76 in F11 and $2.04 in F12.
SABMiller trades at 17.6xP/E based on 2010 estimates, implying 12% premium to Heineken. We think SABMiller’s premium fairly reflects its exposure to emerging markets.