A bit of frothy speculation is probably not what brewing group SABMiller wanted before Wednesday’s full-year results, which are expected to see profits down by about 5%.
The company behind Peroni and Grolsch, which also owns 58% of MillerCoors, has been hit by lacklustre trading, with volume growth forecast to be up just 1%, and the dollar riding high against the currencies in some of its key markets. Analysts at Numis forecast a fall in profits from $6.45bn to $6.1bn, with the trading outlook in Latin America, North America and Europe remaining tough. MillerCoors, which generates around 12% of group earnings, had recently issued an uninspiring update, with first-quarter net revenue down 0.9%. However Numis is sticking with a buy recommendation, “predicated on the view that SABMiller is an industry consolidation target”.
Which brings us to the jump in the company’s share price at the end of last week, as traders reheated talk of a possible consortium bid worth £80bn. The suggested partners were Anheuser-Busch Inbev, Warren Buffett and investment group 3G Capital. We have been here before, of course, and ABInbev’s management indicated after announcing strong quarterly results last week that there was no pressure to take part in mergers and acquisitions. So perhaps froth is all it is.
Calm descends at Capita
In a parallel world where Ed Miliband became prime minister, with the Labour party supported by the SNP, this week’s update from outsourcing group Capita would probably have been full of cautious comment.
In the runup to the election, the company’s share price has been volatile. Labour was likely to clamp down on the drive to put more and more public sector services into the hands of private companies. Around 47% of Capita’s bid pipeline is exposed to the public sector, according to Morgan Stanley, up from 41% in 2010.
Indeed, the uncertainty over the election delayed the awarding of many potential contracts: the company has not announced any new deals since its results in February.
But the Conservatives’ success is now likely to mean business as usual, especially with the new government committed to further cuts in public sector spending. Credit Suisse analysts said: “We expect the benign policy backdrop of recent years to continue and that Capita will play a meaningful role in the both the government’s cost-reduction programmes as well as its ongoing expansion into the private sector in the UK and Germany.”
…and at the Bank of England
One thing the new UK government will not have to worry about is an interest rate rise on Monday.
In the Bank of England’s latest decision – delayed from Thursday because of the election purdah imposed on Mark Carney and his colleagues – rates are expected to be held at 0.5%, and the asset purchase programme target kept at £375bn.
Economist Howard Archer at IHS Global Insight said: “With the UK’s GDP growth slowing more than expected in the first quarter, survey evidence for April mixed and consumer prices remaining flat year on year in March, the case for unchanged interest rates for the time being has, if anything, strengthened.”
Wednesday’s quarterly inflation report will be more interesting: it is likely to repeat the view that inflation will rise from its current low levels to above the Bank’s 2% target in the second half of 2017. The Bank may also downgrade its 2015 GDP growth forecast from 2.9% after the first-quarter figures came in below expectations.
All that means that, while interest rates are likely to remain at current levels for the rest of this year, they may start rising early in 2016. Archer is forecasting an increase from 0.5% to 0.75% in February next year, gradually rising to 2.5% by the end of 2017.
