Why I Would Buy SABMiller plc And Supergroup PLC But Sell Afren Plc

Royston Wild examines the investment cases for SABMiller plc, (LON: SAB), Supergroup PLC (LON: SGP) and Afren Plc (LON: AFR).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am running the rule over three London-listed headline grabbers.


I am convinced that the bottom line should swell at SABMiller (LSE: SAB) in the coming years in line with racing alcohol demand in developing markets. The company currently sources around three-quarters of total earnings from these territories, and noted last month that sales across its core African markets, as well as in Asia-Pacific and Latin America, have all picked in recent months.

SABMiller’s proud record of earnings growth is anticipated to have hit the buffers for the year ending March 2015, however, and a 3% slide is currently pencilled in due to cyclical problems and currency headwinds during the past year. But the business is expected to start accelerating again from this year onwards, and expansion of 6% and 8% is expected in 2016 and 2017 respectively.

At face value the brewing giant may not be the most attractive value pick in town, registering P/E multiples of 22.6 times for this year and 21 times for 2017, some way above the watermark of 15 times that represents attractive value. On top of this, yields of 2.1% and 2.3% for these years fall short of the market average. Still, I believe that the exceptional brand power of SABMiller’s key labels, which includes the like of Peroni and Grolsch, should continue to strike a chord with customers in hot growth regions.


I reckon that fashion house Supergroup (LSE: SGP) is on course to enjoy surging revenues growth as its European expansion plan, combined with improving retail conditions in its critical UK markets, boosts demand for its highly-popular Superdry togs. Indeed, these factors drove like-for-like sales 11.3% higher during November-April, a brilliant turnaround from the 0.3% slip in the corresponding 2014 period.

And in my opinion Supergroup offers very attractive bang for one’s buck. The business is anticipated to follow up a modest earnings improvement for the year ending April 2015 with a meaty 10% advance in 2016, creating a P/E ratio of 16.6 times. And this slips to 14.1 times for 2017 as earnings are expected to pop 16% higher.

On top of this, Supergroup’s improving profits picture is expected to reap rewards for dividend hunters. The retailer is expected to shell out a payment of 19.2p per share in 2016, creating a handy-if-unspectacular yield of 1.8%. But an estimated 22.2p reward the following year nudges this to 2.1%, and I expect dividends to keep heading higher in lockstep with improving till activity.


Unlike the other stocks I have discussed, I believe that oil play Afren (LSE: AFR) is likely to suffer enduring earnings woes as the oil market struggles. Crude prices have enjoyed a strong bounceback in recent months as the number of US rigs in operation has dipped, and the Brent benchmark struck its most expensive point since December — around $68 per barrel — just last week.

But with production from North America’s most lucrative fields still edging gradually higher, and other producers — most notably those from OPEC — vowing to continue pumping with a vengeance, I believe that this recent price uptick is likely to prove a shortlived phenomenon. Indeed, Morgan Stanley said today that “we expect elevated volatility and greater cyclicality to be features of the oil market going forward,” adding that “sustained low prices and greater capex cuts will likely be required to produce a more satisfying recovery.”

The state of Afren’s balance sheet remains another huge cause for concern, despite the firm having secured $255m of funding from bondholders in April. Just today the company missed yet another interest payment, this time to the tune of $12.8m, while wider restructuring of its huge debt pile is yet to be agreed with its lenders. With Afren previously advising that output is likely to fall to between 23,000 and 32,000 barrels per day in 2015, and the oil price outlook remaining muddy at best, I believe that the risks far outweigh any potential returns at the embattled firm.

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 Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Could this undervalued growth stock be the next big success story in US tech?

Shares of this US technology giant have collapsed almost 50% in 2024, but is the growth stock now an incredibly…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

After soaring 35% this year, is there still value in Barclays shares? Here’s what the charts say!

Barclays has been on a tear in 2024. But where does that leave investors considering buying some shares now? This…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

Nvidia stock has surged 3,450%. This UK investment trust owns loads!

Nvidia's recent amazing price surge has helped boost the value of this investment trust too as the chipmaker is its…

Read more »

Bronze bull and bear figurines
Investing Articles

After the general election what might happen to the FTSE 100?

Our writer’s been looking at the manifestos of the three main political parties to try and understand how the general…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

When will Shein hit the UK stock market and should I invest?

With Shein looking likely to list on the London stock market in 2024, this writer weighs up the case for…

Read more »

Investing Articles

Start supercharging passive income with REITs!

Are REITs the ultimate investment for boosting income generated from a portfolio? Zaven Boyrazian explores some of the most lucrative…

Read more »

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »