Credit Suisse downgrades SABMiller, says AB Inbev bid unlikely

Brewing group SABMiller has been hit with a downgrade by Credit Suisse from 'neutral' to 'underperform', with the bank saying that its premium valuation is "unwarranted".

Credit Suisse has lowered its profit forecasts for the company and cut its target price for the shares from 3,700p to 3,400p.

"Over the past decade, SAB has been a topline growth story as it rode the emerging market boom, outperforming other staples, however its margin performance was lacklustre over the period," the bank said.

"With weak emerging markets growth and increasing competition, our detailed analysis suggests further margin headwinds across the group, with no benefit from tax or FX to help offset."

SABMiller is not expected to improve margins at all over the two financial years ending March 2017, despite implied medium-term guidance of a 60 basis point increase per annum. Credit Suisse said competitive pressures, pricing headwinds and reinvestment requirements in key margins will hold back performance on this metric.

Meanwhile, the bank quashed ongoing M&A speculation regarding Belgian brewer AB Inbev, saying that SABMiller is unlikely a bid target at current levels.

"We remain skeptical on the financial rationale for ABI to acquire SAB as it may need to sell up to c30- 35% of SAB's business at a much lower multiple than it pays for it," Credit Suisse said.

SABMiller is trading at 24 times estimated earnings for the 2016 calendar year, a 12% premium to the sector. The bank said this was "unwarranted in our view as topline growth is now only in line with peers, margin pressures are increasing and we think there is a lower probability it will be acquired than in the past".

The stock was down 0.9% at 3,587p by 10:36.