There is plenty to love about globally-diversified brewer SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US). Here are five flavoursome reasons why I like it.
It’s nice to invest in something you understand
Sometimes, it can take time to get your head around what a business really does. How big is the market for a tech company’s processors and peripherals? I don’t know. What exactly is a mobile phone unified communications strategy? Search me. Will a drug company’s new hyperactivity treatment pass late-stage tests? No idea. Beer, however, is something I do understand. SABMiller brews it, millions of people around the world drink it. As business models go, this is as straightforward as it gets. And as tasty.
Investors are swallowing it
Over the last five years, SABMiller’s share price has grown an intoxicating 254%, against a relatively sober 60% on the FTSE 100. This reflects the strength of its premium global brands, which include Peroni, Grolsch, Guinness, Miller, Pilsner Urquell and Fosters, combined with its strategy of targeting popular local brews and developing high-end brands (I’m curious to try Redd’s Apple Ale). Beer will never go out of fashion, but I’m still pleased to see SABMiller diversifying into soft drinks especially since sales grew 23% in the first-half of this year, against just 1% for lager.
It’s a truly global operation
Emerging market exposure is vital for any company, as the US and Europe continue to struggle. SAB Miller’s European adjusted earnings fell 1% to $512 million after an unseasonably cold and wet start to the year, but rose 15% in Africa to $408 million, with strong sales in Tanzania, Gambia, Ghana and Nigeria (the world’s biggest market for Guinness, astonishingly). In Latin America, its largest market, sales grew 6% to $972 million. SABMiler is also posting double-digit group revenues in China. There’s a world of beer out there.
The numbers look good
SABMiller’s share price jumped 3% on publication of its first-half results, which showed a 4% rise in adjusted earnings to $3.27 billion. This was seen as an encouraging performance, especially since earnings had been hit by a decline in key currencies against the strengthening dollar, notably the South African Rand. Adjusted earnings in South Africa were down 8%, yet actually grew on a constant currency basis, thanks to the success of Castle Lite and Castle Milk Stout.
The froth is starting to settle
Just two things put me off SAB Miller, and both are signs of success. Right now, it trades at a high-strength 21 times earnings and yields a weak 2.4%, despite a 4.4% increase in the half-year dividend share. That’s what happens when you grow 254% in five years. But some of the froth is coming off this stock, which is down nearly 7% in the past six months. I like my beers flat rather than fizzy, and it might be time to get my order in.
> Harvey does not own shares in SABMiller.