Is There Still Time To Buy SABMiller plc?

Can SABMiller plc (LON: SAB) move higher, or are the company’s shares overvalued?

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Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.

Today I’m looking at SABMiller (LSE: SAB) to ascertain if its share price has the potential to push higher.

Current market sentiment

The best place to start assessing whether or not SAB’s share price has the potential to push higher is to take a look at the market’s current opinion towards the company.sab.miller

And it would appear that due to SAB’s leading position in the world beer market, investors are highly excited about the company’s prospects. Indeed, with a summer of sporting events ahead, including the 2014 FIFA World Cup in Brazil, demand for SAB’s beverages is likely to surge during the next few months.

In addition, rumours have once again begun to emerge that SAB could be subject to a takeover approach in the near-future. These rumours have sprung from City analysts who suspect SAB’s larger peer and potential suitor, Anheuser-Busch InBev is ready to pounce, having reduced debt levels during the past year. 

Upcoming catalysts

As mentioned above, SAB’s most important catalyst going forward is likely to be the World Cup this summer, which should boost beer volumes.

However, aside from sporting events, due to SAB’s defensive nature, the company lacks any significant catalysts going forward. Instead, more of the same is expected from SAB, slow steady growth.

Luckily, SAB’s most recent trading statement, released only a few days ago, revealed that slow steady growth is exactly what the company is achieving.

In particular, for the 12 months ending 31st March, SAB’s revenue per hectolitre ticked up by 2%, while beverage volumes grew by 2%, on a constant currency basis. On a divisional basis, SAB’s line of soft drinks lead the way, reporting a 5% increase in volumes sold during the period compared to lager volume growth of only 1%. 

Still, what these results fail to show is the effect of the depreciation of key currencies against the US dollar will have on SAB’s earnings. Specifically, Latin America and South Africa are two of SAB’s key trading markets but their currencies have fallen in value recently due to political instability. These weak currencies are likely to put a dent in SAB’s revenue for the period. 

Valuation

Due to SAB’s defensive nature, investors are prepared to pay a premium for the firm’s shares. Indeed, at current levels SAB is trading at a forward P/E of 21.4, the company’s highest valuation in nearly a decade.

However, it would appear that SAB does not deserve this high valuation as the company now trades at a significant premium to its peers, for no obvious reason.

For example, SAB’s larger peer, Anheuser-Busch InBev currently trades at a forward P/E of 12.5. Meanwhile, SAB’s smaller peers, Carlsberg and Heineken trade at forward P/Es of 13.9 and 18.6 respectively.

Foolish summary

So overall, based on SAB’s sky-high valuation it feel that the company is overvalued at current levels. 

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.

Rupert does not own any share mentioned within this article. 

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