SABMiller's (SAB) fiscal 2011 fourth-quarter trading update showed that emerging markets continued to drive growth in the quarter, but a return to growth in Europe was a positive sign. Full-year financial statements will be released in the next few weeks, but on the basis of fourth-quarter volume, both our thesis--which maintains that the company's scale results in a wide economic moat--and our fair value estimate remain intact. We still think the stock is slightly overvalued.
Total fourth-quarter volume increased 3% year over year, an acceleration from the 1% growth rate in the first half. Once again, performance varied considerably across segments. In Asia and Africa, volume grew 8% and 13% respectively. We think both regions present attractive long-term opportunities for SABMiller, with large sections yet to trade up to branded beer. The firm appears well positioned to benefit from favourable demographic and economic trends that should deliver considerable medium-term growth in the market for branded beer. The quarter was notable for a 2% increase in volume in Europe. Western Europe has been a very sluggish market for most consumer staples firms, with austerity measures leading to weak consumer confidence. We expect full-year results to clarify the drivers of SABMiller's strong fourth-quarter volume in Europe.
Latin America was weak, with volume flat in the quarter. Although performance in Latin America was very uneven across markets, this is in line with similar road bumps reported by other Latin American consumer product firms such as Coca-Cola FEMSAKOF in recent quarters. In the United States, where SABMiller operates MillerCoors, a joint venture with Molson Coors (TAP), volume fell almost 3% despite strength in Blue Moon and to a lesser extent other premium brands. Although volume remained weak, we think the joint venture can continue to lower operating costs as it makes its distribution network more efficient and slashes duplicate back-office costs.
In fiscal 2012, we expect premiumisation and per capita consumption growth in emerging markets to drive growth, but increasing volume and raising prices will probably remain difficult in North America and Western Europe. With the stock trading at 18 times our estimate of fiscal 2012 earnings, we think the market is overlooking the prolonged impact that high unemployment, austerity measures, and rising fuel prices will have on mature markets, as well as the structural decline of mass-produced brands in the US. At 11 times forward earnings, Molson Coors is more attractively valued, in our opinion.
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