Right now I’m analysing some of the most popular companies in the FTSE 100 to establish if they are attractive long-term buy and forget investments.
Today I’m looking at SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US)
What is the sustainable competitive advantage?
SAB is the world’s second largest brewer and its portfolio of 84 different brands gives the company an edge over its peers in many individual markets.
SAB has four key ‘global brands’ and 80 ‘local brands’. In particular, the company’s portfolio of local brands, contains the world’s bestselling beer, Snow, which is hardly seen outside of China, its home market. SAB’s portfolio of ‘local brands’ also contains many other brands well regarded in their home markets, such as Zambia’s Chibuku.
Indeed, as the owner of the world’s bestselling beer brand, SAB looks appealing as a buy-and-forget share and is well placed to compete with the world’s largest brewer, ABInBev.
SAB’s size and market-leading position, has enabled the company to achieve rapid growth across all of its markets, without sacrificing profitability. This is an attractive trait in a buy-and-forget investment as it signals good company management.
For example, during the past four years SAB’s sales have expanded 29%, while gross margins have expanded from just under 52%, to approximately 54%. Furthermore, rising gross margins have reflected onto the company’s bottom line as net margins have expanded 2% over the same four year period, from 16% to 18%.
Company’s long-term outlook?
With such a large drinks cabinet of well-regarded brands, SAB’s outlook appears relatively stable. Indeed, the company only requires that each individual brand stays popular within its own market as it is unlikely that the company will see a sustained fall in demand for all of its products at the same time.
Nonetheless, if a brand start to loose appeal, SAB can easily sell it and cut its losses.
That said, competition within the drinks industry is aggressive, especially here in the UK where many microbreweries are taking a large share of the market.
Still, the global beer market remains highly fragmented and SAB’s size means that it is easily able to acquire competitors for additional growth.
What’s more, demand for alcoholic beverages around the globe is only rising as both world’s population and incomes rise. Furthermore, the developing world is gradually becoming more connected, opening up more markets for SAB.
Foolish summary
SAB has a strong portfolio of brands, which are all leaders within their own markets. Additionally, SAB owns the bestselling beer brand in the world and the firm is growing rapidly without sacrificing profit.
