The share-price performance of SABMiller yesterday was an interesting one. The world’s second-biggest brewer came in with some disappointing figures for the second quarter to end-September.
It is a moot point whether these were the result of one-off factors, mainly weather-related, or indicative of a negative trend. Either way, you might have expected the price to fall, which indeed it did in early trading in London.
Once New York opened, it shot up, settling 40p ahead at £32.90. The explanation reflects the paradox in SABMiller’s share price. The worse the company does, the higher the expectations that Anheuser-Busch InBev, the world’s biggest brewer, will finally screw up its courage and bid.
Should SABMiller’s key markets turn positive again, or Alan Clark, its chief executive, pull off some transformational deal against the odds, the share price will probably fall again, to a level that reflects the fundamentals of trading. At present, the shares sell on 21 times this year’s earnings, having climbed to well beyond £37 as recently as last month, when the AB InBev offer was being firmly mooted.
As to the second-quarter numbers, lager sales were off by 1 per cent, after growth at this rate in the first quarter. The company is blaming poor weather in China, where it is the world’s biggest producer by volumes; the weak market in Australia throughout the first half due to constrained consumer budgets; and a soggy summer in central Europe.
By contrast, Latin America and Africa were strong. The US is seeing some switching from its two volume brands, Coors Lite and Miller Lite, to higher-margin products.
That weakness in lager is balanced by strong demand for soft drinks. These are by definition lower margin, and this will eventually be reflected in first-half profits.
The assumption is that Mr Clark will eventually buy out the company’s African joint venture with Castel of France and will expand further into soft drinks, though there are plenty of other buyers out there for such assets.
Investors have a clear choice. They can take profits at this level or stay in and gamble on a bid.
I would do the second.
H1 beverage volume growth 1%
11% UK H1 net revenue increase
My advice Hold/take profits
Why Valuation is well ahead of where it should be in fundamentals, but the prospect remains that AB InBev will eventually bid
There were some mixed messages in the third-quarter figures from Michael Page International, which explains the 8 per cent fall in the share price, even if this looks like an overreaction.
Fee income across the group in the third quarter was up by 11.6 per cent, the best performance all year. Page is therefore hiring extra staff to cope with demand in areas such as North America, China and southeast Asia, with about 400 added this year to a workforce of 5,500.
But this investment will take time to feed into profits next year as those new staff build up their productivity. Meanwhile, Asia is seeing growth slowing, which will come off the gross profit line. Confidence in the eurozone is understandably fragile, even if Page is continuing to build its business finding temporary staff in both France and Germany.
As a result, operating profits for this year will come in perhaps 5 per cent lower than the market consensus, the main reason for the share price fall. This illustrates the dilemma that always faces recruitment companies: there is little forward visibility of earnings, so they can be caught out if expensive hiring sprees are followed by a market downturn. The company is confident that, given its high staff turnover, the business can be cut back in size quickly if this becomes necessary. This note of caution, though, was noticeably absent from recent updates from the rivals Hays and Robert Walters.
The shares, off 31¾p to 384p, sell on 23 times earnings. Still not cheap, unless you take an optimistic view of the eurozone, so hold for now.
Q3 fee income £132.9m
My advice Hold
Why Uncertainties are there, and shares are highly rated
Boohoo.com
Revenue £67m
Customers 2.7m
Its share price has been falling in recent weeks along with the other clothing retailers, but boohoo.com seems largely immune to the damage done to others, such as Next and N Brown, by the mild September weather.
This is partly because the online retailer gets a third of its sales from overseas. Its core demographic — 16 to 24-year-olds — tends not to buy much knitwear and coats for the winter. The months of November and December are the most important, about a quarter of boohoo’s sales.
Still, the shares, floated at 50p in the spring and back above that price until mid-September, are now 44p, up 1p. The half-year figures to end-August are positive enough. Margins were off a bit because of investments in the period, but on a like-for-like basis operating profits were 16 per cent ahead at £4.3 million.
Boohoo has completed the investment in its new warehouse in Burnley, Lancashire, and moved further into non-English speaking markets with new sites in Spanish, German and Italian.
It is adding customers, though the UK will eventually reach maturity. The shares sell on 34 times earnings; high but attractive long term. Hold.
My advice Hold long term
Why Shares are highly rated but the growth is there
And finally...
Another one bites the dust: Allocate Software, whose products allow NHS trusts to manage their staffing levels, has agreed a £109.6 million offer from HgCapital, the private equity investor. The offer, worth 153.55p, is more than a third higher than the price on Monday night. NHS staffing is a political hot potato at present, and Allocate’s products will be increasingly in demand. The shares, which I tipped in July, had not done much this year and the price on offer was easily too good to turn down.
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