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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 (HINKY.PK) 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.

Source: SAB Miller: Positive Pricing and Lower Input Costs Bode Well