Harvey Jones develops a taste for SABMiller plc (LON:SAB).
It's time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I've got my wallet out. So here's the question I'm asking right now. Should I buy SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US)?
Investors in brewing giant SABMiller have had plenty to celebrate lately, with the share price rising 12% over the winter. And rightly so, people always like a drink at Christmas. So does it still look a juicy prospect in dry January? And if so, should I buy it?
Think global, drink local
Beer is a global drink and, with more than 200 beer brands and 70,000 employees in over 75 countries, SABMiller is a truly global business. Its best-known brands include Peroni, Grolsch, Miller, Pilsner Urquell and Fosters, which it swallowed in 2011 for a cool £7.5bn. That makes it the world's second biggest brewer, after Anheuser Busch InBev. SABMiller also has a growing soft drinks business, and is one of the world's largest bottlers of Coca-Cola products. A micro-brewery, it ain't...
Lager than life
SABMiller half-year results, published last November, went down nicely with the stock market. Subsidiary Miller Brands UK defied the wet summer and struggling domestic beer market to post sales growth of 5%. There was a time when British drinkers could only buy Peroni in pizza chains and Pilsner Urquell in upmarket off-licences, but suddenly, they're everywhere. That's tribute to the power of this FTSE 100 company's potent marketing. And if your local boozer is suddenly stocking Czech pilsner Kozel, another brand getting a big push in the UK, now you know why.
SABMiller's global business also had plenty of fizz, with larger volumes up 4%, currency group revenue up 8% and reported group revenue up 11%. Adjusted earnings per share and free cash flow both rose 14%. It also reported success in integrating Fosters, standardising back-office functions and integrating front-office systems are moving apace. SABMiller's tastiest prospects lie in emerging markets such as China, Latin America and Africa, where newly wealthy consumers are blending their traditional taste for spirits with a growing thirst for beer. Some analysts claim the Africa brewing industry could one day outstrip the US and Europe, and SABMiller is well placed to cash in, having opened a multi-million pound brewery in Nigeria last year. On the downside, sales in China, where it owns the biggest beer, Snow, slowed slightly and there was some slippage in Latin America. In Europe sales fell 10%, which leaves a bitter taste.
Personally, I like a nice, warm pint of British real ale, but SABMiller doesn't operate in that market. The craft micro-brewing revolution is gathering pace globally, but I can't see it denting SABMiller, which has worked hard to build a portfolio of strong, local brands through alliances, mergers and acquisitions. A bad harvest could put pressure on margins, by pushing up commodity costs, but this is an impressive operation. So why haven't I bought it already? Well, five years of steady growth have left it trading on a price-to-earnings ratio of 20, and a dividend yield of just 1.9%. That's a bit pricey, but many investors will be happy to pay a little extra for this premium strength company.
Lite years ahead
If SABMiller isn't to your taste, you might want to slip into the one UK share that Warren Buffett loves. This special in-depth report from the Motley Fool explains exactly why Warren Buffett bought this share. Better still, it is completely free and without any obligation. Availability is strictly limited, so if you want to know the name of this company, please download it now.
> Harvey doesn't own any shares mentioned in this article.