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SABMiller Mulls Options for $1.04 Billion Tsogo Sun Stake

SABMiller Plc Chief Executive Officer Alan Clark
SABMiller Plc Chief Executive Officer Alan Clark said, “We continued to deliver top-line growth for the year, despite a number of headwinds and a challenging fourth quarter.” Photographer: Simon Dawson/Bloomberg

April 15 (Bloomberg) -- SABMiller Plc, the world’s second-biggest brewer, said it’s considering options for its $1.04 billion stake in hotel and casino operator Tsogo Sun Holdings Ltd. as it reported beer revenue that missed estimates.

The 39.6 percent holding in the Johannesburg-based company is “not considered to be core to the beverage operations of SABMiller,” the maker of Peroni, Grolsch and Castle Lite said today in a statement. There’s no certainty any action will arise from the strategic review, SABMiller said.

The possibility that the brewer may consider selling its stake in Tsogo Sun increased after SABMiller merged the company with Gold Reef Resorts Ltd. in 2010, a transaction that reduced its stake from 49 percent. Tsogo Sun’s other main investor is Hosken Consolidated Investments Ltd., which owns about 41 percent, according to the company’s website.

“It’s unlikely that one single entity will take up all those shares, as there’s not a lot of buyers around with that kind of cash and empowerment credentials in place,” said De Wet Schutte, a Cape Town-based analyst with Avior Research (Pty) Ltd. He has a neutral recommendation on Tsogo Sun.

SABMiller’s revenue increased 3 percent in the year and 2 percent in the fourth quarter, missing the median estimate of analysts for a 4 percent increase for both periods. The brewer is seeking to offset sluggish consumption in Europe and the U.S. with sales in faster-growing parts of the world.

“The miss is bigger than we expected,” Jonathan Fyfe, an analyst at Mirabaud in London, wrote in a note, citing a market slowdown in Africa as a concern. “We suspect our full-year 2015 earnings forecasts probably need to come back a bit.”

Luxury Hotels

SABMiller fell 2 percent to 3,063 pence at 9:09 a.m. in London trading. Tsogo Sun eased 0.2 percent to 2,535 rand in Johannesburg, valuing South Africa’s biggest hotel and leisure operator at 30 billion rand ($2.9 billion).

Tsogo Sun has more than 90 luxury hotels in seven African countries including Nigeria and the Seychelles. Its interests include Montecasino, Johannesburg’s Tuscany-themed hotel, theatre and casino complex.

“This is a legacy thing for SAB,” said Schutte. “They’ve never been very active in Tsogo Sun, but there’s been a change of leadership at SABMiller and maybe with that there’s been a change of approach to these non-core assets.”

Alan Clark became chief executive officer a year ago, succeeding Graham Mackay, who died in December. The brewer announced this month that Norman Adami is stepping down as chairman of its South African unit in July.

Social Instability

SABMiller was formed in South Africa, which is now the second-biggest provider of the company’s revenue after Latin America. The brewer said March 31 that a slowing economy, social instability and the weakening rand were weighing on improvements in its drinks business in the country.

“We continued to deliver top-line growth for the year, despite a number of headwinds and a challenging fourth quarter,” CEO Clark said in the statement. The company has “confidence in our ability to deliver higher revenue growth in the longer term.”

SABMiller also repeated today that the depreciation of key currencies against the U.S. dollar, its reporting currency, will “adversely impact reported results.” The company has the largest exposure to emerging markets of any global brewer.

Organic lager volume rose 1 percent last year, the brewer said, in line with the median estimate of 12 analysts surveyed by Bloomberg News. Volume fell in Europe and the U.S. Lager volume in Africa rose 5 percent in the year, compared with a 9 percent increase during its first half.

Organic revenue measures exclude acquisitions, disposals and currency fluctuations.

To contact the reporter on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Paul Jarvis

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