It's been a good week for brewers, with several companies reporting results.
If anyone wanted to check out the health of the booze sector, this week provided some important results, with worldwide drinks giant SABMiller (LSE: SAB) reporting first-half results on Thursday, and UK brewers Fuller Smith & Turner (LSE: FSTA) and Young & Co's Brewery (LSE: YNGN) doing the same on Friday.
Brewing giant
SABMiller is the world's second largest brewer, responsible for such common beer brands as Grolsh, Peroni, Urquell, and Miller. It has operations throughout the world, with about a third of its turnover in Europe.
But despite that, around 90% of its profits come from developing markets, and although these showed improvements, totals sales for the first half of the year came in at $8.9bn, down from $11.2bn, and pre-tax profit fell 26% in dollar terms, to $1.5bn, after sales in developed nations fell. Against that, lager sales in the UK rose by 15%, though I'm not quite sure what that says about the quality of British boozing.
Diluted earnings per share fell to 63 cents, from 94 cents, though the interim dividend was raised a cent to 17 cents.
It's hard to compare these figures with the previous year, because adverse currency exchange conditions and exceptional restructuring costs took their toll this year, but Chief Executive Graham Mackay did opine that the company has seen some of the toughest economic conditions in decades.
Cost cutting is on the cards now, with savings of about $300m per year expected over the next four years. The shares have had a very nice ride this year, and, based on current forecasts, we're now looking at a prospective P/E for the full year of around 18, and a prospective dividend yield of about 3%, which strikes me as too high, especially as there are much better yielding shares to be had.
A UK favourite…
Closer to home, Fuller, Smith & Turner, brewer of that English staple, London Pride, delivered a nice set of half-time figures, with pre-tax profits up 26%, to £15m, on turnover of £117m, up 10%. Adjusted earnings per share frothed up 17%, to 18p for the period.
We did have a rather pleasant and early summer this year, which had an effect on the volumes of beer we poured down our throats, but even so, this must be seen as a pleasing set of numbers, especially in the light of the past year's economic woes. Investors seemed to like them, with the share price popping up 5% on the day.
But even though the shares have been pretty flat for the past six months, I again don't see any great bargain here. Forecasts indicate a prospective full-year P/E figure of around 17, with a prospective dividend yield of 2%. The company is valued at around £165m, but was carrying net debt of around £93m at the end of the last full year, so investors will need to keep an eye open for that in six months' time.
…Or two
Close competitor Young & Co's Brewery also delivered a healthy interim report, with adjusted pre-tax profit up 3.7%, to £11.5m, on the back of moderately improved turnover that rose 1.5% to £67.2m. Adjusted earnings per share increased too, to 17.8p from 17.4p, with an accompanying rise in dividend, from 6.12p to 6.24p.
Although trading has again been hard, the report told us that the company had not cut prices to pursue short-term sales, preferring to maintain the premium status of its products and premises, and so put the company in a good position for strong long-term growth.
The share price didn't really move much on the news, and although the company's balance sheet looks a bit stronger than Fuller's, with net debt of only £65m (against a market capitalisation of £220m), I'm going to be a sourpuss again and say that I wouldn't buy the shares. At least, not at a price that puts them on a prospective P/E of around 16 and a dividend yield of 3%. I think they're a better buy than Fullers, but they're not cheap enough to tempt me.
To sum up, it's nice to see the beer industry doing well in the face of economic adversity, and it's especially good to see two purveyors of exceptionally fine English ales thriving, but my money is more likely to be going on their beers, and not the shares.
And that's because there are just too many more attractive options out there, with shares priced at lower P/E values, and offering much better dividend yields.
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