DAVID JONES, London | Friday
SOUTH African Breweries reported a 6% fall in half-year profits this week, weighed down by the weakness of the rand and a domestic beer market hurt by surplus cheap wine.
The company, which brews two-thirds of Africa’s beer and earns over half its profits in rand, showed a strong performance in Eastern Europe and China, but saw no early improvement in South Africa, where its beer volumes were off 6%.
The London-listed brewer, maker of Castle and Lion beer and the world’s fifth largest beer maker, said pre-tax profits for the half year to September 30 rose to $310m after $319m, beating analysts’ forecasts of $275-295m.
Its shares perked up to close 10 pence higher at 425p – a fraction below its March 1999 London listing of 428p – as the market chose to focus on better-than-expected profits and international growth rather than its South African woes.
The shares have been ravaged over the last 12 months, underperforming the UK market by 28% and by 30% since its flotation, as investors shied away from its exposure to the rand, the South African economy and emerging markets.
”We are buyers of the stock, but for a re-rating of the shares, the group needs to reduce its emerging markets exposure and get more Western earnings and improve the liquidity of the stock,” said analyst Stuart Price at brokers CSFB.
SAB stock is still largely held by South African shareholders and trading in London has been limited.
SAB Chief Executive Graham Mackay appeared to pour cold water on expansion into Western Europe, saying cost saving synergies were greater for someone already in place.
SAB in June lost out in the bidding process for Bass brewing to Interbrew, which by then already owned Whitbread’s beer business, while Scottish and Newcastle picked up Kronenbourg earlier in the year.
”We and most others are quite cautious, we think getting into a bidding race is irrational and not a smart thing to do, it is better to come around once the dust has settled,” said Mackay in a news briefing.
Mackay said the 6% decline in South African beer volumes continued into October and November due to surplus cheap wine selling at as little as 20 pence/litre and a 50% fuel price hike over the last year pushing up transport costs.
”These factors are temporary but they are continuing for longer than we would like,” he said, adding the market would bounce back with the economy as beer prices were relatively cheap – as little at 22 pence a pint in the large townships. – Reuters