SABMiller has reported better than expected profits, and even though it was cautious about the outlook its shares have moved higher on continuing bid hopes.
The world’s largest brewer Anheuser-Busch InBev has been tipped as a possible bidder for the maker of Peroni and Grolsch, with renewed speculation coming as recently as last week.
Meanwhile SABMiller said full year earnings dipped 1% to $6.37bn, but were above expectations of a decline to $6.23bn. The recent strength in the dollar reduced the value of overseas sales and pushed up raw material costs, while in volume terms, beer was flat but soft drinks rose 8%.
The company said trading was likely to remain challenging, and it would continue to be hit by currency volatility, although it was confident it could deliver “superior long-term growth.”
The news has pushed the company’s shares up 75p to 3577.5p, and Wyn Ellis at Numis said:
SABMiller has reported EBITA for 2015 of $6.37bn a little ahead of our $6.1bn forecast and in line with the $6.46bn reported in 2014. Organic, constant currency EBITA grew 6% with EBITA margin expansion of 30 basis points which highlights the impact of negative currency movements. Lager volumes were flat year on year, with growth in Africa and Latin America offset by volume weakness in China and North America. China returned to growth during the last quarter.
We believe that the outlook for 2016 is relatively lacklustre: whilst the outlook in Africa is promising, we have concerns about a backdrop of increased competition and difficult trading conditions in the key Latin America market and trading conditions in North America and Europe remain tough.
Our buy stance on SABMiller is predicated on the view that SABMiller is an industry consolidation target.
And in a buy note Canaccord Genuity analyst Eddy Hargreaves was more specific, saying:
Overall, we consider these results to be robust, albeit with any performance relative to expectations being largely the result of successful cost cutting initiatives.
We continue to believe that a bid for SABMiller by AB Inbev is reasonably likely by the end of the year (given AB Inbev’s need to manage its balance sheet efficiently), while investors also benefit from the possibility of buying out Castel in Africa at some stage, as well as inherently strong prospects from the group’s geographic footprint.
