Investment Column: SABMiller is best served a little cooler
Friday 20 May 2011
Our view: Hold
Share price: 2,290p (+24p)
In certain British bar and restaurant chains, the drinks giant SABMiller is best known for its Peroni and Pilsner Urquell lagers.
But the UK accounts for a very small amount of the $28.3bn (£17.5bn) in revenues that the group delivered for the year to 31 March, a rise of 7 per cent. It was the emerging markets of Latin America, Africa and Asia that helped to drive this boost in sales.
Add SAB's ability to push through price rises and cost savings, and the result was an impressive 24 per cent uplift in pre-tax profits. This was despite tough conditions in Europe and North America.
The biggest contribution in terms of profits and revenues came from Latin America. Indeed, SAB Miller's performance in the region would have been even better without external factors that hit sales in Colombia. SABMiller said that lager volumes tumbled by 6 per cent there, partly as a result of the emergency VAT levied on the beer category in February 2010, as well as exceptional and prolonged flooding in several regions.
Overall, SAB Miller seems to have plenty of top and bottom-line growth ahead of it in fast-growing markets, including China, although this momentum means its shares are trading on a multiple of 16 times forward earnings for next year. While we remain fans of the company, and its beers, we would wait for the shares to cool down.
Our view: Hold
Share price: 140.1p (+8.6p)
TalkTalk was spun out of Carphone Warehouse in March 2010, and yesterday marked the landmark occasion of its first full-year results announcement as an independent telecoms group.
It has been a mixed year. There was growth in revenues and in earnings before interest, taxation, amortisation and depreciation, but the numbers missed analyst hopes.
And last month, there was bad news when Ofcom figures showed that it was its most complained-about broadband and landline provider between October and February. This peaked in the wake of the regulator's investigation into the company's incorrect billing of customers for cancelled services. TalkTalk said the issue had been dealt with, but it did cost £2.5m in refunds, and 25,000 customers in the last three months of the year.
Still, chief executive Dido Harding is a strong hand on the tiller and the hopes for the medium term may indeed be more positive. She is cutting the workforce by almost 13 per cent and launched a "medium-term plan" in November to boost the company's profit margins to 20 per cent. That argues against a sell view.
But the competitive landscape, the company overhaul and possible regulatory issues weigh against buying.
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