Netherlands: Heineken’s management is on target to reach EUR200 million of savings by the end of the 2008 financial year
A hot European summer coupled with the football world cup has boosted beer sales across the continent, giving brewers such as Heineken a timely boost, The Business posted August 04.
Until recently the EUR17.8 billion (£11.5 billion) Dutch brewing giant’s traditional markets of western European had proved distinctly lacklustre. However the company has made amends in recent years with aggressive growth in Russia and a strong recovery in the US, where its Heineken Premium Light product has been well received.
Ever since Heineken issued a strong trading statement earlier this summer its shares have been in strong demand, rising from less than E31 to top E36.50 before consolidating just above the E36 level.
In its trading statement Heineken told investors sales had been healthy in central and eastern Europe, the Americas, Africa and South East Asia but western European growth remained weak. The company was sufficiently confident to raise its own profit expectations from “mid-single digit” to above 10%.
Rabo Securities welcomed the “substantial” increase in management’s expectations saying it was “very positive as it implies the first strong positive surprise regarding volume growth in years, which seems caused by a combination of company-specific factors and favourable market conditions”.
Management has also set itself a target of EUR200 million in cost savings, a move which recently saw 500 jobs go in Russia and the sale of unused land at its Seville brewery in Spain, which will lead to a book gain of EUR329 million in the second half.
The successful launch of the premium light product in the US has boosted Heineken’s presence there, at no cost to sales of its original Heineken product according to the company. Heineken has also been active in attempting to grow in new emerging markets. Buoyed by its success elsewhere in South East Asia, one of its subsidiaries recently bought out the Vietnamese operations of Fosters for US$105 million.
Brokers have been mixed in their views on the company’s prospects. The likes of Dresdner Kleinwort Wasserstein, ING and Merrill Lynch all have buy recommendations while JP Morgan and Rabo have hold ratings. Merrill Lynch reckons Heineken is witnessing higher than expected volume growth across several markets and thinks management is on target to reach EUR200 million of savings by the end of the 2008 financial year.
Simon Hales of JP Morgan has maintained his neutral recommendation despite recently raising his price target from E32.50 to E33.25 and his earnings per share estimates for this year from E1.92 to E1.95. Hales sees no reason why its shares will underperform its peers in the near term.
Heineken’s interim results this week should give investors a better idea of how strong performance is and may contain an update on sales during the world cup.
Tilbage
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