SABMiller's (SAB) fiscal 2011 results contained few surprises, as the firm had already released a fourth-quarter trading update. In line with our investment thesis, the results showed that emerging markets continue to drive growth in the quarter, while a return to volume growth in Europe was a positive sign. We may modestly raise our 1,850p fair value estimates as we digest the results. However, although we admire SABMiller's wide economic moat and emerging-markets growth story, we continue to believe the stock is slightly overvalued.
Total fourth-quarter volume increased 3% year over year and 2% for the full year, an acceleration from the 1% rate in the first half. Once again, performance varied considerably across segments. In Asia and Africa, volume grew 8% and 13%, respectively. We think both regions present attractive long-term opportunities for SABMiller, with large sections yet to trade up to branded beer. With an existing manufacturing and distribution infrastructure in Africa, SABMiller is at a cost advantage to its rivals and can profitably deliver very low-priced products in early-stage developing markets, a category that most of its rivals cannot afford to penetrate. The fourth quarter was notable for a 2% increase in volume in Europe. Western Europe has been a very sluggish market for most consumer staples firms, with austerity measures and excise tax increases in some markets affecting volume. EBITA in Europe grew 2% in fiscal 2011, and while the firm will be cycling weaker comps in the first half of the next fiscal year, we anticipate that the expiration of some raw-material hedges could result in near-term gross margin pressure.
Latin America was weak, with volume flat in the quarter. Although performance in Latin America was very uneven across markets, this is in line with similar road bumps reported by other Latin American consumer product firms such as Coca-Cola FEMSAKOF in recent quarters. Consumption growth will be highly dependent on commodity prices and is likely to remain lumpy in the medium term. In the United States, where SABMiller operates MillerCoors, a joint venture with Molson Coors TAP, volume fell almost 3% despite strength in Blue Moon and to a lesser extent other premium brands. Although volume remained weak, we think the joint venture can continue to lower operating costs as it makes its distribution network more efficient and slashes duplicate back-office costs. For example, MillerCoors' EBITA margin jumped 240 basis points in fiscal 2011 as a result of cost savings, and while synergies are likely to decelerate next year, we anticipate further efficiencies despite the absence of volume growth.
In fiscal 2012, we expect premiumisation and per capita consumption growth in emerging markets to once again drive growth, but increasing volume and raising prices will probably remain difficult in North America and Western Europe. With the stock trading at 18 times our estimate of fiscal 2012 earnings, we think the market is overlooking the prolonged impact that high unemployment in the construction and manufacturing sectors, austerity measures, and rising gas prices will have on mature markets, as well as the structural decline of mass-produced brands in the US. For growth investors, SABMiller is a fascinating story, but for value investors, we recommend Molson Coors, which at 12 times our estimate of 2011 earnings offers more upside, in our opinion.
