SABMiller’s results came in a little better than the market feared — the brewer appears to be outperforming rivals such as Heineken and Carlsberg, at least. From an investor’s point of view, though, the numbers look like an irrelevance, set against the prospects of a takeover approach.
This is one of those rumours that have been around for years, will not lie down but has yet to get beyond the gossip stage. The latest reports mention a combination of AB InBev, the world’s biggest drinks group and the long-time expected bidder, Warren Buffett and 3G Capital, the Brazilian investor.
The figures to the end of March show a better-than-expected recovery in the second half, particularly in Asia Pacific and Europe. These were both in negative territory in earnings terms in the first half. Asia recovered because of a degree of price rises pushed through in Australia and a return to growth in China, where the first half had been affected by poor weather. Its brewing business there, CR Snow, has just handed over its first dividend payment in two decades.
SABMiller is one of those global businesses whose territories drift up and down by a few percentage points each time, offering few obvious ways of moving the dial. The real kicker is exchange rates. At reported rates, revenues were off by 2 per cent. By the measure the company prefers, organic growth at constant currency rates, they rose by 5 per cent, with earnings up by 6 per cent implying a 9 per cent rise in the second half.
That foreign exchange drag, and the strong dollar, therefore reduces the amount of reported profits but, as with Experian yesterday, this will benefit investors getting their dividends in sterling terms.
An 8 per cent rise to 113 cents, then, will translate into a significantly larger increase when the payment is made in August.
The transactional effect of the high US dollar against African currencies will continue into this year, because raw materials such as barley, glass and aluminium cans are bought centrally in dollars.
SABMiller shares, off their best for this year but up 73½p at £35.76, thus offer the investor a dilemma.
They sell on 24 times earnings, a multiple that can be justified only if you think that bid will emerge. If not, avoid.
Revenue $22m
Dividend 113 cents
MY ADVICE Avoid for now
WHY The high multiple the shares trade on can be justified only by a bid approach, and forex will continue to be a headwind
For several days I have been trying to understand why the imposition of fines on people owning houses worth more than £2 million should have any effect whatsoever on the affairs of Barratt Developments, average selling price 240,000, and its ilk.
Still, Barratt shares, up another 18½p at 564p, are now 10 per cent ahead of where they were last Thursday night, and the market is never wrong, is it? Except that the housebuilder says the strong start to the year continued without a break as the election neared, with sales going ahead even at its one highly priced central London site. You might have expected a mild pause.
Barratt has raised its forecast of the number of units it will build in the year to the end of June to 16,100, from an expected 15,700 and an increase of nearly 9 per cent on the previous year. It has used the continuing market strength to put more units on some of its older sites, which will offer lower margins because the initial land purchase was more expensive, but still, a sale is a sale.
The Tory government does at least provide some economic stability, which will continue to encourage buyers, the company has the land to support fresh building, and the necessary planning for next year is in place. November will see the first of the £400 million of promised special dividends, and the cash is piling up to pay for them.
The shares are on about 1.7 times net asset value. That looks expensive for now, but the long-term outlook remains very strong. I am not sure I would be buying at these levels, but I would on any weakness.
Expected completions this year 16,100
MY ADVICE Avoid for now
WHY Price looks toppy, though attractive long term
Analysts have been concerned for a while about “cost creep” at Premier Oil’s Solan field in the North Sea, and about delays to its reaching first production.
Premier said yesterday that development spending would be up by $50 million to $750 million this year but that Solan would now produce later this year, though this would probably make little change to forecast guidance of 55,000 barrels a day for the year.
Its other North Sea field, Catcher, is also on track, first oil in mid-2017. The excitement of late at Premier, though, has been in the Falklands, and the Zebedee discovery announced at the start of April. The results from a second discovery well, Isobel Deep, are expected by the end of this month, and Premier has in place the lower cost development route for its Sea Lion field in the Falklands.
The shares, up 7p at 187½p, have pretty much tracked the oil price. I liked Premier at the start of the year as one of the more appealing prospects for a takeover approach, and it still has one of the lowest production costs in the sector. As the oil price stabilises, that bid activity looks less likely anywhere. No pressing reason to buy.
Expected production 55,000 bpd
MY ADVICE Avoid for now
WHY M&A looking less likely in the oil sector
And finally…
A good send-off for Alan Semple, who stood down as finance director of John Wood at the annual meeting yesterday, having served since the 2002 stock market flotation. Wood has inevitably been hit by the falling oil price and cuts in capital spending, but the company said that it now had a degree more visibility of customers’ spending plans. There is even work being won helping those customers re-engineering large projects on a more economic basis. The shares managed to edge up 2 per cent.
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