The performance dichotomy between developed and emerging markets was clearly evident in SABMiller's (SAB) fiscal 2011 first-half results, with double-digit growth in emerging markets but a weak performance in Europe. On balance, the firm's brands were able to support slightly higher prices than we had expected, so we are raising our fair value estimate slightly to 1,800.00p, but our thesis that emerging markets will drive growth remains intact. We still think the stock is slightly overvalued.
On an internal basis, first-half internal and currency-neutral revenue rose 4%, thanks to lager volume growth of 1% despite higher prices. This was a sequential improvement from fiscal 2010, when revenue fell 4% and volume was flat, and demonstrates that SABMiller's brands were able to sustain some price increases. However, the company's performance varied considerably across segments. Asia, Africa, and Latin America all achieved double-digit revenue growth, an acceleration from last year, while volume fell 5% in Europe and 3% in North America (at the MillerCoors joint venture). Pricing power remains weak in these regions because of price-conscious consumers and continued softness in the on-premise channels. With the stock trading at almost 20 times our estimate of fiscal 2011 earnings, we think the market is overlooking the prolonged impact that high unemployment, austerity measures, and weak consumer sentiment will have on mature markets, particularly in Europe.
Nevertheless, SABMiller's performance in emerging markets is solid. Although the FIFA World Cup gave a temporary boost to volume in South Africa, the host nation, volume growth in Latin America was impressive, particularly in light of the slowing growth reported by beverage maker Coca-Cola (KO) in the third quarter. In the second half of the year, we expect premiumisation and per capita consumption growth in emerging markets to continue to drive growth, but increasing volume and raising prices will continue to be difficult in mature markets.
