Today I am explaining why I believe SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US) is set to experience strong earnings expansion in coming years.
Earnings expected to keep their fizz
A strong stable of premium labels, combined with rising exposure to emerging markets, has enabled SABMiller to punch many years of steady earnings growth even during periods of severe macroeconomic turbulence and thus pressure on shoppers’ wallets. And I believe the brewer has what it takes to keep earnings per share (EPS) rolling higher in coming years, with EPS of 156.1p forecast for the year ending March 2014.
The brewing leviathan — whose portfolio of world-class brands include the Grolsch, Peroni and Miller lagers — announced last month that group revenues advanced 6% during April-September, with total volumes rising 2% from the corresponding 2012 period. This was driven by a 1% improvement in lager volumes and 5% increase in soft drinks sales.
In particular the company “achieved a strong performance across our African business and made good progress in building on our positions in Latin America, South Africa and the Asia-Pacific region,” chief executive Alan Clark noted. SABMiller’s largest single geography is Latin America, which now accounts for 23% of total revenues, and growth across emerging geographies continues to outstrip that of the firm’s traditional Western regions.
Indeed, sales from Asia Pacific have grown some 62% in the past year alone, and this region has now overtaken North America in terms of overall revenues. And SABMiller remains proactive in developing its presence in key developing regions, and the company’s Ugandan Nile Breweries subsidiary opened its second brewery in August, effectively doubling brewing capacity in the country.
After punching a mild EPS decline in 2009, SABMiller has recorded strong double-digit improvement each year since then, and boasts a compound annual growth rate of 10.3% during the past four years. And although City forecasters anticipate a slight 4% earnings increase for the current year, to 156.1p per share, this is expected to accelerate again in the year concluding March 2015 — EPS is currently anticipated to advance 12% year-on-year to 174.1p.
The drinks leviathan currently carries a prospective P/E rating of 20.8, above a corresponding average of 19.5 for the complete beverages sector. But in my opinion the company’s stunning record of relentless earnings growth, combined with expanding operations in rich emerging nations, justifies this marginal premium.
> Royston does not own shares in SABMiller.