Market Report: SABMiller firms up as market stumbles

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The Independent Online

The drinks giant SABMiller drew strength from hopes of growth in Latin America as the FTSE 100 dipped back into the red last night.

The stock was 26p stronger at 1693p after UBS said that even though the group faces a near-term headwind in the form of increased Columbian beer taxes, the long-term opportunity in the region was attractive. The Columbian tax, which is due to take effect next month, and which is expected to add around 8 per cent to the retail price of beer, could hit volumes by around 4 per cent. Without the tax, the broker would have expected around 4 per cent volume growth in 2011, and now assumes flat Columbian volumes for next year. That said, in the longer term, the company stands to benefit from favourable demographic trends and prospective rises in per capita consumption in the region.

A shift in focus from production to investment in coolers should also drive Latin American sales as cold beer becomes more widely available, while SAB's brewing operations give it a cost advantage in non-alcoholic, malt-based drinks; "a material part of the Latin American beverage market", UBS explained. "We believe [Latin American] volumes have bottomed and will see growth going forward, though the Colombia increase in beer tax is a headwind in 2011 . We expect [that] by 2012, SABMiller will be back to its underlying trend of around 5 per volume growth...", the broker said, reiterating its "buy" stance.

Overall, the FTSE 100, which broke a four-session losing streak on Tuesday, veered sharply lower, declining by 59.38 points to 5217.47, while the FTSE 250 lost 47.67points to 9245.25. The losses were pegged on a recurrence of recent concerns about the regulatory threats faced by the banks, and about recent signs of monetary tightening in China. Early weakness on Wall Street, nervousness ahead of an interest rates statement from the US Federal Reserve, and a disappointing report on the sales of newly built American homes also depressed the market's appetite for risk. Man, the hedge fund group, was amongst the hardest hit, sliding by more than 6 per cent, or 17.1p, to 246p on the back of disappointing weekly net asset value figures. The stock was also pressured by Credit Suisse, which scaled back its target price to 300p from 320p.

In the banking sector, Royal Bank of Scotland was 1.81p weaker at 32.99p amid continued speculation about how recent regulatory proposals from the Basel committee of the Bank of International Settlements may impact the sector. Uncertainty about the Obama administration's plans also bore on sentiment, with Barclays declining by almost 3.3 per cent, or 9.15p, to 266.85p as traders looked ahead to the US President's State of the Union address to Congress. Lloyds proved more resilient, easing by 0.87p to 50.84p. The inter-dealer broker ICAP, which had been underperforming on the back of worries about the impact of US regulatory moves, gained ground last night, rising by 4.3p to 384.3p as bargain hunters moved in. FTSE 250-listed peer Tullett Prebon also firmed up, edging up by 2.6p to 303.4p.

The miners were also broadly unsettled, though Lonmin gained 7p to 1836p after Bernstein raised its target price for the platinum producer's stock to 1280p from 1250p. A number of its peers were held back as worries about Chinese tightening lingered, with Xstrata, the target for which upped to 1160p at Bernstein, slipping to 1050p, down 34p, and Anglo American, the target for which was raised to 3100p from 2940p, losing 78p to 2379p. Kazakhmys, down 9p at 1265p, was also weak despite Bernstein revising its target to 1250p.

Elsewhere, the catering giant Compass tumbled to 430p, down more than 3 per cent or 14p, after Numis revised its view to "add" from "buy" ahead of the company's update next week. "We believe that, near term, tough economic conditions will continue to negatively impact growth," the broker said, though it remained hopeful about the group's prospects. "We see signs that employment levels are bottoming and, whilst Compass may lag [a] recovery slightly, this will eventually result in a better demand environment."

Further afield, Partygaming, which was under pressure on Tuesday after co-founder Anurag Dixit completed the sale of his stake, bounced back to rise by 5.1 per cent, or 14.2p, to 292p as the market's attention shifted back to the prospect of deal activity. The rumour mill was also in action around Tate & Lyle, the sugar and sweetener manufacturer which was broadly unchanged at 407.1p, up 0.2p, amid speculation that the American hedge fund Harbinger may be about to reduce its stake in the company.

Panmure Gordon supported the home shopping group N Brown, which stood its ground after the broker reiterated its "buy" stance following a meeting with management. "Findel's trading statement [today] may provide come clues as to the likely performance of N Brown's debtor book. Although no comment was made in last year's statement, this year's statement is over two weeks later so may be more informative," the broker said, keeping its target for the stock unchanged at 295p. At the close, Findel was flat at 33p, while N Brown gained 0.2p to 227.6p.

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