Investment Column: SAB's share price is looking a little frothy

Burberry; Cove Energy


Our view: Hold

Share price: 1996p (+86p)

Investors were raising a glass to SABMiller yesterday when the drinks group said that fourth-quarter sales jumped by 2 per cent, a rise that topped the market's forecasts. The maker of Peroni and Grolsch said an early Easter had helped trading, while volumes over the last 12 months were flat, in line with previous estimates.

The brewing industry has done no little whining over the last two years, blaming the bad weather, increased duty on beer and the smoking ban for an anaemic industry-wide performance. There are still elements that harp on about these ills, even now.

But SABMiller has had a good year, with its stock rising by an impressive 80 per cent. In trading terms, the coming year should also be bright for the emerging markets specialist. The weather augers are predicting a good summer, while the World Cup will have us toasting success on the pitch, or more likely perhaps, drowning our sorrows. Ever strengthening demand from places like China, Latin America and Eastern Europe should also help the group.

SAB put on a decent 4.5 per cent yesterday, but despite all the encouraging factors, we rather suspect that punters have missed the boat. According to UBS, the shares trade on a current year price-to-earnings ratio of 16.5 times, bang in line with the European beverages sector. UBS says buy, arguing that sales in the emerging markets will push the group ahead. We do not disagree, but the forecast 2010 dividend yield, at 2.4 per cent, is no better than adequate, and not big enough to counter what we think will be an inert share price. SABMiller is a decent company, and undoubtedly solid, but there is more fizz around elsewhere, so we'd just Hold for now.

Burberry

Our view: Hold

Share price: 695.5p (-6p)

Burberry's shares closed down in what was a buoyant market yesterday. That was despite the high-end retailer saying that full-year profits were on track to slightly exceed market hopes. So, what happened? Was there some devil lurking in the detail? We think not. Traders simply took profits as the session came to a close. Burberry was pegged to impress, and it did, and some of those who'd piled in hopes of short-term gains duly filed out. The share price chart is telling in this regard – Burberry went from under 600p in early February to above 740p near the end of March.

The question for those still holding the shares, then, is whether or not Burberry's valuation leaves any scope for short- to medium-term gains. The long-term case seems intact. Management has revitalised the brand in recent years and the company is putting in the foundations for future growth by moving in to markets such as South America and India. But, as the analysts at Investec point out, the stock trades at a premium to its luxury goods peers and at the upper end of its own historic range on price-to-earnings multiples.

Indeed, on the broker's figures, Burberry trades on a multiple of 21.2 times earnings estimates for 2010. That does fall to 18.4 on the numbers for 2011, but, given recent strength, we think investors should exercise some caution. Again, this is not about the company – there are no grounds to justify a sell rating, in our view. But given recent gains, we would hold for now, though we would wade in on any weakness.

Cove Energy

Our view: Buy

Share price: 49p (-6p)

Cove Energy's shares dropped by 11 per cent yesterday on news that it had ceased drilling at its second "Collier 1" well because of safety concerns. We say: even more reason to buy.

Cash shell Lapp Plats was reborn as Cove Energy last year thanks to former Dana exploration director John Craven and former Shell Algeria chairman Michael Blaha. The plan was to mop up distressed companies' assets, and within months, the newly formed Cove did a deal with Norway's Artumas for interests in Tanzania and Mozambique. It then put together a five-well drilling campaign with operator Anadarko Petroleum for offshore Mozambique, with £40m from an equity placing. In February, Cove went from a good idea to an explorer that stands out from the crowd when its first well, Windjammer, uncovered a significant gas column – sending the stock soaring from 23.5p to 43.5p in just four days.

Optimism is still running high. While Collier is suspended, the remaining three wells will go ahead. And if there is time at the end of the programme, Collier will be revisited. Either way, we are sufficiently impressed with Cove's swift progress and early success that Collier is of little concern. For investors interested in explorers, Cove has an unusual combination of cash, assets and promise. Buy it while it's cheap.

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Market Risk Manager - Investment Banking - Mandarin Speaker

£45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Day In a Page

Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes
Independent writers remember their Saturday jobs:

Independent writers remember their Saturday jobs

"I have never regarded anything I have done in "the media" as a proper job"
Lyricist Richard Thomas shares his 11-step recipe for creating a hit West End musical

11-step recipe for creating a West End hit

Richard Thomas, the lyricist behind the Jerry Springer and Anna Nicole Smith operas, explains how Bob Dylan, 'Breaking Bad' and even Noam Chomsky inspired his songbook for the new musical 'Made in Dagenham'
Tonke Dragt's The Letter for the King has finally been translated into English ... 50 years on

Buried treasure: The Letter for the King

The coming-of-age tale about a boy and his mission to save a mythical kingdom has sold a million copies since it was written by an eccentric Dutchwoman in 1962. Yet until last year, no one had read it in English
Can instilling a sense of entrepreneurship in pupils have a positive effect on their learning?

The school that means business

Richard Garner heads to Lancashire, where developing the 'dragons' of the future is also helping one community academy to achieve its educational goals
10 best tablets

The world in your pocket: 10 best tablets

They’re thin, they’re light, you can use them for work on the move or keeping entertained
Lutz Pfannenstiel: The goalkeeper who gave up Bayern Munich for the Crazy Gang, Bradford and a whirlwind trawl across continents

Lutz Pfannenstiel interview

The goalkeeper who gave up Bayern Munich for the Crazy Gang, Bradford and a whirlwind trawl across continents
Pete Jenson: Popular Jürgen Klopp can reignite Borussia Dortmund’s season with visit to Bayern Munich

Pete Jenson's a Different League

Popular Klopp can reignite Dortmund’s season with visit to Bayern
John Cantlie video proves that Isis expects victory in Kobani

Cantlie video proves that Isis expects victory in Kobani

The use of the British hostage demonstrates once again the militants' skill and originality in conducting a propaganda war, says Patrick Cockburn
The killer instinct: The man who helps students spot potential murderers

The killer instinct

Phil Chalmers travels the US warning students how to spot possible future murderers, but can his contentious methods really stop the bloodshed?
Clothing the gap: A new exhibition celebrates women who stood apart from the fashion herd

Clothing the gap

A new exhibition celebrates women who stood apart from the fashion herd
Fall of the Berlin Wall: Goodbye to all that - the lost world beyond the Iron Curtain

The Fall of the Berlin Wall

Goodbye to all that - the lost world beyond the Iron Curtain