Profits on the lite side

SABMILLER is a strong brewing giant, with a good geographical spread from Africa and central Europe to Latin America, but the company's defining acquisition five years ago has never worked brilliantly.

That was the transformational deal when South African Breweries swooped on Miller in the United States to mark a step-change in SAB's ambitions and reach.

However, it has been a fits-and-starts purchase, with the latest annual results from SABMiller showing continuing problems.

Miller has continually struggled for growth Stateside under its new owners. Perhaps the pivotal obstacle has been the entrenched market positions in the US of its two main rivals, the mighty Anheuser-Busch, owner of the ubiquitous Budweiser, and Coors.

Both have major marketing budgets, Anheuser-Bush in particular being a redoubtable leviathan to take on there, having a beer market share of no less than 50 per cent.

There were also special circumstances behind the 17 per cent fall in Miller's profits this time round, with the subsidiary taking a $100 million (50m) hit from higher aluminium prices.

The latter have a disproportionately big impact in the US market, where there is a far bigger beer can and home-drinking culture.

Miller suffered from not having hedged its aluminium purchases as much as its rivals, and so had to mitigate its effects with cost-cutting.

The good news is that SABMiller chief executive Graham Mackay says he believes the worst is over on the higher prices and he expects the situation to get better. He will also be passing on some of the higher aluminium prices to customers.

Elsewhere, as often has been the case, SABMiller's results were also impacted by the volatility of the South African currency, which often resembles a skittish antelope.

The company makes about a third of its beer and soft drink earnings in rand, and the currency has slumped 13 per cent against the dollar, in which it reports, over the past year.

The effect was to rein in profit growth from its South African operations to 4 per cent in dollar terms.

On a more local level, Mackay must be cheering the fact that sales of SABMiller's Polish beers such as Tyskie have taken off like a rocket in the UK on the back of the influx of Polish workers into the country.

In the second six months of its trading year, sales of Tyskie leapt more than 330 per cent on the same period of the previous year.

Shareholders in SAB, meanwhile, have been insulated to the group's problems via a healthy 14 per cent rise in the dividend to 50 cents.

SAB's shares, off 19p or 1.6 per cent at 1,167p, have been generally strong in recent years, but have experienced a little volatility in the past year or so.

They trade on a price multiple of 16.4 times forecast earnings, compared with InBev on 20.1 and Heineken on 20.5, taking into account SAB's greater emerging-market exposure.

When things are going great in those markets it is great for SAB, which has largely steered clear of flat, mature beer markets like the UK and the rest of western Europe.

But when things turn down in some of its riskier territories, the shares take the flak.

STANDARD Life Investments has really moved among the big investment management boys.

Not only has the Edinburgh fund manager managed to go against the flow and increase its sales in the first quarter when all around were falling, but it has also managed to force itself into the top three retail fund managers in terms of sales.

These are no mean achievements for a company that has been in existence for less than a decade.

So what has the company done right?

Its management team, led by chief executive Keith Skeoch, has stuck to basics by making sure performance of its funds has been pretty spot on.

Once this building block was established, Skeoch took SLI farther by coming up with innovative products, which have captured investors' imaginations.

This recipe, together with the backing of the Standard Life brand, has paid dividends.

SLI also seems to be benefiting from the well-publicised travails at the likes of rivals Credit Suisse and Fidelity.

The omens don't seem bad for SLI to cement its new status.

Chemicals group Yule Catto unveils restructuring

SMALL BUT BEAUTIFUL

SPECIALITY chemicals firm Yule Catto said this year had started positively as it announced a new organisational structure and associated management changes.

The group said unaudited management accounts showed revenues and profits were in-line with expectations. First quarter pre-tax profits in all three operating divisions are ahead of the corresponding period last year.

Following an extensive review of its organisational structure and management capabilities, the group has decided to restructure the group into three divisions: polymer chemicals, pharmaceutical chemicals and impact chemicals

It has also restructured the senior management teams that will run the three divisions.

To run the impact chemicals division the company has appointed Derick Whyte, who will join on 21 May.

Yule Catto chairman Anthony Richmond- Watson said: "I strongly believe this new organisation structure and associated management changes will better allow the company to be managed in line with the issues and opportunities each division is facing and in so doing enhance the overall performance of the group."

Virgin Mobile in Indian venture

RUMOUR OF THE DAY

RICHARD Branson's Virgin Mobile is entering the Indian market via a 50-50 joint venture with the Tata Group as early as this quarter, according to sources close to the development.

Both companies declined to comment.

The Tata Group's telecom arm, Tata TeleServices, will form the joint venture that will introduce the Virgin brand in India, the world's fastest growing telecoms market.

Virgin will exclusively license the Virgin Mobile brand, technology expertise for value-added services and handsets to the joint venture.

Tata TeleServices will also use Virgin's core expertise in marketing and service innovation to create offerings largely targeted at the youth segment, which comprises nearly half of India's mobile phone users.

Turbo Power

ONE TO WATCH

9.5p +0.25p

Scotsman says BUY

TURBO Power Systems was formerly known as TurboGenset Incorporated. The group's principal activities are in the developing and manufacturing of electrical machines used in distributing power generation applications.

The generator system division specialises in high speed electrical machines that can be coupled directly to other machinery.

The power and electronics division has a range of products, including grid connected inverters and power products for distributed generation and renewable energy applications, high voltage power supplies and power supplies for railway applications.

Like so many companies involved in early stage development, Turbo Power Systems has a voracious cash hunger. It raised 6 million last October through a share placing and moved from a main listing to AIM, although it is also quoted on the Toronto Stock Exchange.

The market has been indifferent to Turbo Power for some time but this may be a mistake.

Its order book is growing. Its latest quarterly results saw a narrowing of the trading loss and new orders from the US National Railway Equipment Co. Turbo also has contracts with the likes of SKF, Boeing and Hamilton Sundstrand.

Further cash calls are likely but Turbo enjoys strong shareholder support, in the Far East in particular.

While Turbo has been in investment maana for some years, its potential is considerable and the lengthening list of its order book does suggest growing credibility for the company; a high risk prospect, certainly, but with very real potential.

• The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.

Old Mutual

180.3p +4.4p

Broker says BUY

THINGS were on the up for Old Mutual after Deutsche Bank raised its view on the British-South African insurer to "buy" from "hold" with the target price raised to 200p from 190p. Its exposure to the US sub-prime market, capacity concerns around the US asset management business and Skandia's new business margins "shouldn't keep you up at night", the broker said. The broker added it saw the exchange rate as the main risk, given that half the operating value is still denominated in rand.

Whitbread

1,897p -11p

Broker says BUY

SHARES in the pubs and leisure group fell despite an upbeat report from ABN Amro, which increased its target price to 2,240p from 2,100p and reiterated its "buy" stance. The broker said it raised its target price to reflect a 5 per cent earnings per share upgrade, a possible budget-hotel acquisition and its expectation for excess cash returns, higher future leverage and a re-evaluation of the asset base.

Antofagasta

540p -6.75p

Broker says HOLD

A UBS downgrade to "neutral" from "buy" sent copper miner Antofagasta south yesterday, with the Swiss broker suggesting the Chile-focused company was unlikely become a bid target in any sector consolidation. The shares lack a company specific catalyst, with the exception of sustained copper and molybdenum prices, UBS said. Some brokers said base metals could hit a few speed bumps during the summer.