Why SABMiller plc’s Investment Plans Are Set To Turbocharge Growth

Royston Wild evaluates what SABMiller plc’s (LON: SAB) capex drive is likely to mean for future earnings.

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Today I am looking at why I believe SABMiller‘s (LSE: SAB) (NASDAQOTH:SBMRY.US) investment plans should deliver spectacular earnings growth.

Emerging market exposure on the march

Global beer brute SABMiller — which operates more than 200 beer brands spanning 75 countries across the globe — has found the right recipe to keep revenues rolling higher despite enduring pressure on consumers’ wallets.

Critically, the company has vast exposure to developing regions, an essential quality whilst sales growth in the West continues to sabmillerunderwhelm. Indeed, SABMiller saw net producer revenues (NPR) in Latin America — the firm’s largest single market — and Asia Pacific rise 5% and 6% correspondingly during October-December. And in Africa and South Africa NPR advanced 8% and 7% during the period.

Bolstered by this success, SABMiller is actively enhancing its footprint in these lucrative growth regions. In January the business announced plans to add to the $100m investment in the Onitsha brewery in Nigeria, a rapidly-expanding market for the company. The company noted that “due to our growth and in particular the success of Hero Lager, a further $110m will be invested in the brewery to triple its current annual capacity from 700,000 to 2.1 million hectolitres.”

And just a month later CR Snow — the firm’s joint venture with China Resources Enterprises — announced plans to acquire Chinese mega brewery Kingway for $864m. SABMiller said that the purchase will allow it to bolster production of its Snow label in the world’s largest beer market.

Earnings expected to rumble higher

SABMiller has punched solid double-digit earnings expansion during each of the past four years, and the brewing giant boasts a compound annual growth rate of 14% for this period.

City analysts expect current travails in developed markets to result in a mere 2% advance for the year concluding March 2014, results for which are due on Thursday, May 22. However, consensus current consensus points towards a re-acceleration in growth rates over the medium term, with expansion to the tune of 8% and 10% pencilled in for 2015 and 2016 respectively.

Such projections create P/E readouts of 19.8 and 17.9 for this year and next, not a million miles away from a forward average of 18.6 for the entire beverages sector. But for me, SABMiller’s ongoing bid to ratchet up its exposure to red-hot growth markets — spearheaded by its stable of leading brands such as Peroni and Miller — makes it a standout sector pick for solid long-term growth.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Royston does not own shares in SABMiller.

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