South African Breweries (SAB) Plc is set to report a 9% rise in half year profits next week, but most attention will focus on its plans for a big deal or alliance in the global beer market, analysts s…
South African Breweries (SAB) Plc is set to report a 9% rise in half year profits next week, but most attention will focus on its plans for a big deal or alliance in the global beer market, analysts said. Underlying profits will be led by its international brewing side and South African soft drinks interests, which will help to offset an anticipated decline in South African beer volumes. Analysts see pre-tax profits for the half year to 30 September of US$ 330-340 million after US$ 308 million previously, and look for a half year dividend of 8-10 US cents a share when the group reports its interim results on 24 November. The brewer, which will move up one place to number three in the world beer league table after its recent Czech acquisition, will have benefited from a more stable rand and lower interest rates with three-quarters of profits coming from South Africa. The group, which already brews two-thirds of Africa“s beer, spearheaded by its Castle and Lion beer brands, has said it is looking to expand in three areas – China and Asia, the rest of Africa outside South Africa, and Central and Eastern Europe. It is also looking for the “right kind” of beer acquisition in the developed world, which analysts have speculated might include Danone“s Kronenbourg or even Diageo Plc“s Guinness unit. One analyst pointed out that SAB can afford to spend up to three billion pounds on an acquisition in cash, and still have interest cover of over 3.5 times. In October, SAB agreed to sell its 68.3% stake in South African auto glass firm PGSI for US$ 230 million, and the previous month its largest shareholder Beverage and Consumer Industry Holdings (Bevcon) unbundled its 26.6% SAB stake. Analysts said SAB had delivered on its strategic objectives by agreeing the sale of PGSI, addressing the Bevcon situation and increasing its presence in central Europe with a major beer buy, but there is concern that a larger deal which the group may have in mind could destroy shareholder value. The group moved its primary stock market listing to London from Johannesburg in March this year with an initial share placement price of 428 pence, and the shares have seen a steady rise to be quoted up 10 pence. Later in October, SAB said it had acquired Nomura“s Czech beer business comprising the nation“s two top brewers Pizensky Prazdroj, with its famed Pilsner Urquell beer, and Pivovary Radegast in a deal worth up to US$ 630 million by 2001. Chief Executive Graham Mackay said after the Bevcon deal that SAB continued to review acquisitions, and the group was currently examining several. Analysts said the Czech deal was unlikely to be the end of the road, given a war chest of around US$ 1 billion before the Czech purchase. Analysts said the Czech deal was fairly small in the context of the size of SAB and made reasonable strategic sense, but the market was a little reserved at the high price paid in terms of earnings per unit of beer produced. On dividend policy, SAB has said it was looking for dividend cover 2.2 to 2.5 times earnings, with analysts suggesting a full year dividend of 24-25 cents a share, with around one third expected in the half year payment.