SAB Miller : Tweaking our Estimates and Raising our Target Price to £40
* We have trimmed EPS 0.6-1.5% — We have marked-to-market for FX and we
have slightly revised down our organic growth forecasts, due to the deteriorating EM
macro environment. We now assume 0.9% organic lager volume growth in FY16,
revenue +4.3% and EBITA +5.2%. We expect profit growth to remain quite subdued
in FY17 (org EBITA +5.7%), as transactional FX pressures are likely to offset the
benefit of cost savings, in our view. We are about 2% below consensus on EPS for
FY16 and 4% below on FY17.
* We are raising our 12-months target price to £40 — Our new target (raised from
£33) assumes a higher likelihood of an ABI take-over, at our base case scenario
price of £42. Even if an agreement on a deal is reached, we recognize that SAB
would likely trade at a discount to the take-out price, because of the complexities
and lengthy process to get to completion.
* Q2 trading update preview — SAB’s Q2 trading update is scheduled on 15th
October, but this could change as a result of potential newsflow on ABI-SAB. We
forecast 2.5% lager volume growth and +5% organic revenue growth for Q2. We
believe lager volume growth will have improved sequentially (from -1.4% in Q1) on
an easier comp, driven by China (Q2 last year was significantly depressed by poor
weather), Europe (Poland and Czech should be less bad than in Q1 and Italy has a
very strong YoY weather benefit). Africa could be better too (est +6% volume
growth, with the improvement coming from Tanzania and South Africa). We expect
slightly softer price/mix in Q2 (+2.2%) reflecting adverse country mix (China
recovery). Please refer to our detailed forecasts on pages 3-4.