UK: SABMiller's shares fall flat

SABMiller, the London-based brewer with South African origins, failed to put fizz into its shares despite reporting an 11% sales increase for the first half of 2007, Forbes published October 15.

Shares in SABMiller fell 45 pence (92 pence), or 3.0%, to £14.38 ($59.74) during midday trading in London.

The brewer said Monday that like-for-like lager sales--excluding recent acquisitions such as Sparks and Steel Reserve in the U.S.--had grown 11% for the six months ended September 30, but there were some cautious references to "higher input costs" and "increased investment" in the trading update.

According to Ben Maitland, analyst with WestLB Research, higher commodity costs, related to a shortage of raw materials, have hurt SABMiller. "There definitely is a shortage of brown glass," he said, which was affecting the brewer's leading market position in South Africa. "They have got to import glass and that is very expensive."

Maitland said the higher costs shaved company margins and addedo SABMiller's woes in its country of origin. Although the brewer has enjoyed a virtual monopoly in South Africa, where it was founded in 1895, earlier this year Heineken said it would terminate its 40-year South African relationship with SABMiller for the manufacture, marketing and distribution of Amstel.

SABMiller also said Monday that Latin American growth had slowed in recent months, settling at around 4% for the second quarter as opposed to 12% in the first.

"Poor weather in Peru and slightly slower economic growth in Colombia drove the slowdown," said Philip Morrissey, analyst with Citigroup. He told clients that new brand launches and "normalized" weather would hopefully result in improved growth in the second half of the year.

As for the North American market, SABMiller is hoping that its latest venture with Molson Coors will pay off against the market leader Anheuser-Busch. The companies announced the "MillerCoors" partnership last week, which will save costs and significantly enhance SABMiller's U.S. position according to Lehman Brothers analyst Ian Shackleton.

17 October, 2007