Emerging Markets Continue to Quench SABMiller's Thirst

The beverage manufacturer’s trading update shows good volume growth but the shares remain overvalued

Holly Cook 22 January, 2013 | 6:55PM

Brewer SABMiller (SAB) issued a trading update for the fiscal third quarter ended December 31 on Tuesday, which revealed that the company's execution in emerging market remains unimpeded.

“Volume growth was solid in most developing geographies, which offset anaemic results in the bulk of the company's developed beer markets,” commented Morningstar analyst Thomas Mullarkey. “Although we are likely to slightly increase our 2,350p-per-share fair value estimates in April when we roll our assumptions forward by one year and account for the time value of money, we believe the market is still overly optimistic and view the shares as overvalued,” he added, however.

Third-quarter organic volume growth came in at 2% for beer and 3% for soft drinks; with revenue per hectolitre climbing an impressive 5% as the firm benefited from price increases and a more premium mix of brews.

Mullarkey notes that volume growth was strongest in the Latin American segment, where lager volume climbed 6% led by Colombia (+7%) and Central America (+8%). Similarly, African lager volume inched up 4% on top of double-digit growth in the year-ago period, and African soft drink volume increased 12%. “While this was good volume performance for the summer months in Africa and South America, volume in Asia was more disappointing,” Mullarkey said. “Lager volume in Asia (excluding Australia) was down 1% on an organic basis, as Chinese volume slipped 3% because of poor weather. Somewhat offsetting this disappointing performance in China was 18% volume growth in India.”

Meanwhile, in most of the company's developed beer markets, volume was “more tepid”, said Mullarkey. Lager volume was down 1.1% in the company's MillerCoors joint venture in the United States and down 4% in Australia.

“We continue to believe that the company's overall portfolio will slowly become more upscale as developed beer market consumers increasingly shift their palates and wallets towards higher-priced imported beers and craft brews,” Mullarkey concluded, though his fair value estimate indicates that the market is still currently overvaluing the stock, earning it a 2-Star rating as at close of business on January 22.

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Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
SABMiller PLC  -
About Author Holly Cook

Holly Cook  is Managing Editor of Morningstar.co.uk