SABMiller suffers serious hangover

SABMiller shares were driven to new highs by "irrational excitement," according to the City, but the froth has been knocked off the price in the past month and a disappointing second-quarter update from the world's second-largest brewer does nothing for confidence.

Alan Clark, who runs the Miller, Grolsch and Peroni firm, blamed currency markets, weak sales in Australia, and "poor summer peak weather" both in China and Europe for the watered-down quarterly numbers.

Group net producer revenue (NPR) growth slowed to 3% during the second quarter from 6% in the first three months of the year. Asia Pacific fell 3% and Europe 2%. Total beverage volume fell 1% in the quarter ended 30 September after rising 3% in the first quarter, sunk by an 8% slump in Asia and declines in both Europe and the US. Half-year NPR grew 5% and drinks volumes rose 1%.

Thankfully, lager volume returned to growth in Latin America during the period following price increases there, while demand for soft drinks jumped by 10%. And in Africa, pricing and so-called "premiumisation" of lager consumption gave volumes a lift, despite excise tax increases in Tanzania.

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But these numbers are not good enough to get SABMiller shares back to that September peak of 3,857p. Talk of an approach from rival Anheuser-Busch InBev and a "clumsy" bid for Danish peer Heineken was behind that rally. Neither has come to anything and the former, according to Deutsche Bank, "will not happen today, nor anytime soon, if ever." SABMiller's share price now sits at technical support near 3,200p.

Prior to the latest update, Deutsche Bank had pencilled in adjusted pre-tax profit of $4.53 billion (£2.84 billion) for the year to March 2015, up 12%, giving adjusted earnings per share (EPS) of $2.54. That puts SABMiller on 21 times forward earnings, still a premium to the sector and a multiple which adequately reflects forecast average earnings growth of 8% for the next three years.

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