UK: SABMiller’s shares down 20pc in 2006

SABMiller, after almost doubling its market capitalisation over the previous two years, underperformed the brewing sector by nearly 20pc in 2006, according to The Daily Telegraph, Via Thomson Dialog NewsEdge January 24.

It has been hampered by two difficult markets: the US and South Africa, where its origins lie and where it controls 98pc of the beer market.

About two-fifths of SABMiller's operating profits come from South Africa but it reports its profits in US dollars. The weakness of the rand against the dollar last year was a serious blow. The rand has begun to recover quite strongly and 2007 has already seen a share price recovery.

The US market, however, is a more serious concern. Quite simply, Americans have fallen out of love with big, bland beer. "Craft'' beers, as Americans quaintly call anything with a taste, are faring well.

Miller has suffered from falling demand and falling prices, as the big brewers keep on cutting costs. Its rival Anheuser-Busch has vowed to raise its prices in the States, which should signal an end to the destructive price wars, if not the slow decline in beer volumes.

SABMiller has its sights set on China, which overtook the US last year as the world's largest beer market and grew at an astonishing 15pc.

The 165m pounds deal to buy out the remainder of the Blue Sword brewery that it does not already own looks very sensible. It consolidates its position as China's biggest brewer and takes it further into the provinces, where beer consumption is still very modest, but has plenty of potential.

That said, a forward price-earnings ratio of 19 is pretty punchy, even for a company that is so exposed to the booming Chinese market.

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