Should I Buy SABMiller plc?

I’m out shopping for shares again, and here’s the question I’m asking right now. Should I buy SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US)?

Trouble brewing?

Last time I looked at global brewing giant SABMiller, back in January, I developed a real thirst for this stock. But it came with a bitter aftertaste, trading at more than 20 times earnings.

The world’s second biggest brewer, after Anheuser Busch InBev, boasts top beer brands such as Peroni, Grolsch, Miller, Pilsner Urquell and Fosters, and is moving into soft drinks as well. Has it retained its fizz? And if so, should I buy it today?

SABMiller has risen 51% over the past three years, against 16% for the FTSE 100 as a whole. But it’s heady trajectory has slowed lately, with just 11% growth in the past 12 months, broadly in line with the index.

This partly reflects disappointing first-quarter results, which showed beer sales hit by “unseasonably cold and wet conditions” in its northern hemisphere markets.

In Europe, lager volumes fell 7%, thanks to cloudy skies and depressed consumer confidence. Sales also disappointed in the US, where MillerCoors revenue fell 3%, and China, where sales grew just 2%. This is just a seasonal dip, however, and existing shareholders will be hoping the recent stonking summer will spark a beery revival.

Southern comfort

SABMiller is a globally diversified company, and the sun shone on sales in Latin America and Africa. It is also successfully integrating recent acquisition Fosters into the company, and management was sufficiently confident to hike the full-year dividend per share by 11%.

Unfortunately, this isn’t a great income stock, yielding just 2.1%, well below the FTSE 100 average of 3.5%. That is forecast to hit 2.5% by March 2015.

So what do its growth prospects look like?

Pretty healthy, with forecast earnings per share (EPS) growth of 10% in the year to March 2014, and 12% the year after. But you pay a premium price, with SABMiller trading at 20.3 times earnings, which makes it still too expensive for me.

Credit Suisse recently cut its recommendation from ‘outperform’ to ‘neutral’, trimming its target price from £38 to £32.50, noting that the stock trades at a premium to the sector. Others are more positive; Santander has it as a ‘buy’ with a target price of £36.75. Today, you pay £30.15.

SABMiller is an ambitious, well-run company, with a successful global strategy, but I reckon there are more exciting growth opportunities out there.

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Harvey Jones doesn't own shares in any company mentioned in this article.