SABMiller’s 1Q is good for InBev, bad for Heineken

Regional volume trends over the quarter imply differing developments at SAB's large European peers, according to SNS Securities

Holly Cook 3 August, 2009 | 2:11PM
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SABMiller on Friday updated the market on its fiscal first quarter performance in a management statement that revealed the global beer market remains depressed, but differing regional performances mean the read-across is not unique for large European brewers.

SAB’s group lager volumes were level in the three months to end-June compared to the same period in the previous year but revenues benefitted from last year’s pricing. Volume trends revealed US and Latin America sales declined by about 1% organically, while Europe was “particularly weak,” according to analysts at SNS Securities, with a decline of 7%. Sales volume growth in Africa/Asia reached 11%, driven mainly by Asia.

The impact of these insights into the global beer market differs, therefore, depending on the company. “We see SAB’s trading update as being the most positive for Anheuser-Busch InBev and the most negative for Heineken, while it is neutral from Carlsberg,” SNS Securities said this morning.

For Heineken, the analysts believe SAB’s 7% organic volume decline in Europe stands out as the Dutch firm generates around 75% of its volumes in this region. “SAB reported mid- to high-single digit declines in markets like Poland, Russia and the UK, which are all key markets for Heineken,” the analyst pointed out. Africa, however, did relatively well, "which implies that this region will again be Heineken’s sweet spot.”

SNS Securities believes SAB’s statement is fairly positive for peer InBev, which brews Hoegaarden and Stella Artois among others, as the Belgium-based firm is thought to have performed slightly better in the US than MillerCoors, SAB’s joint venture brand with Molson Coors. Further, SAB’s relatively resilient performance in Latin America could also bode well for InBev, given the weight of its operations in Brazil and Argentina, the analyst said.

Turning to Danish brewer Carlsberg, SNS Securities feels that, on balance, SAB’s update should infer very little for Carlsberg as the growth figures reported by SAB for the Russian market – where Carlsberg operates the Baltika Beverages Holding brewery (BBH) – are not too far off current second quarter estimates for the Danish firm. SAB’s comments that firm pricing achieved last year continues to support the top line should be taken as a sign that pricing discipline continues in the sector in most markets so far this year. “The continued strong pricing discipline is positive for all players in the sector,” SNS Securities highlighted.

Going forward, the broker rates InBev as a stock to Hold “due to its premium valuation versus the group,” while Heineken is another to Hold “due to a lack of positive trends in its key markets.” Carlsberg, however, is a Buy for SNS Securities as it is “the cheapest of the large global brewers” and the analyst expects it to benefit early from better input cost trends.

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Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites