The Investment Column: SA Breweries

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SOUTH AFRICAN Breweries, the world's fourth largest brewer, is not living up to its name. Despite controlling about 98 per cent of its domestic market, the London-listed company has its heart set on international expansion. This is where SAB's main potential lies, though yesterday's half year results show that much still needs to be done.

SAB's international division contributed just 26 per cent of turnover, with the group's South African beer and other beverages units propping up its unsuccessful ventures in areas such as Russia and Hungary. Overall, pre-tax profit was up just 4 per cent at $319m (pounds 198m).

Breaking down the key international division, overall disappointments masked brighter news. In Europe, organic growth in sales volume was 8 per cent, driven by increased demand in Poland, where the total beer market grew by 11 per cent and SAB's sales were up 27 per cent, taking its market share to 22 per cent. In Slovakia, volume was up 9 per cent and the Canary Islands also reported volume growth. On the negative side, the group's newly commissioned Russian brewery suffered from unanticipated higher packaging costs, and margins in Hungary came under pressure due to oversupply. In October, SAB boosted its presence in Central Europe when it acquired controlling stakes in the two top breweries in the Czech Republic, including the maker of Pilsner Urquell, for pounds 194m.

Non-core interests are being sold. PGSI, which makes glass for car windows, has gone for $236m and yesterday SAB said it would review the position of its Southern Sun hotels operation.

Analysts are forecasting pre-tax profits for the full year of $699m. putting the shares, down 8p at 583p yesterday, on a forward multiple of 17. That is a premium to the sector and given this is a difficult share to trade due to large South African holdings, the stock is best avoided