Why SABMiller plc Should Be A Winner Next Year

I’m taking a look around the top FTSE 100 shares to check out what the City analysts are forecasting and see if they’re justified. Today my subject is SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US), which has a pretty unique record.

But before I tell you what that is, here’s a look at the past five years’ figures together with forecasts for the next two:

Mar Pre-tax EPS Growth Dividend Growth Yield Cover
2009 $2,958m 137.5c -4% 58c   3.4% 2.4x
2010 $2,929m 161.1c +17% 68c 17% 2.1% 2.4x
2011 $3,626m 191.5c +19% 81c 19% 2.2% 2.4x
2012 $5,603m 214.8c +12% 91c 12% 2.2% 2.4x
2013 $4,712m 238.7c +11% 101c 11% 1.8% 2.4x
2014(f) $4,015m 250.3c +4% 111c 10% 2.2% 2.3x
2015(f) $4,444m 277.1c +11% 123c 11% 2.4% 2.3x

That’s an impressive earnings and dividend record.

But even though we’ve had regular double-digit dividend growth, the yield has been falling. And the firm’s price-to-earnings (P/E) ratio has been rising, from just over 12 in March 2009 t0 nearly 24 at the same stage in 2013.

The obvious reason is that the share price has been rising, and that brings me to SABMiller’s enviable record — its share price has beaten the FTSE every year for the past 12 years!

Approaching the end of 2013, that record is looking unlikely to be extended for another year — SABMiller shares are up 5.7% to 2,985p since the beginning of the year, with the FTSE 100 up 9.3%. But shareholders will still be pretty pleased with the way things have gone.

What does it do?

SABMiller is best known on these shores for brands like Miller, Pilsner Urquel, Grolsch and Peroni, so you might wonder where future growth is going to come from. But some will be surprised to learn that the firm’s biggest single-country market is South Africa, which accounts for about a fifth of its annual turnover — SABMiller started life as South African Breweries in 1895, which is how it got the “SAB” part of its name.

Colombia is next after South Africa, accounting for about 15% of turnover, followed by Australia where SABMiller owns the rights to Fosters. Only around 2% of turnover comes from the UK.

Overall, then, the company has an entire world of expansion to aim for, and it’s done pretty well so far to become the world’s second largest brewer by revenue (after Anheuser-Busch InBev).

How’s it looking?

At the halfway stage in September this year, revenue was pretty much flat, with adjusted pre-tax profit up 5% and adjusted earnings per share up 3% (in US cents — in pence it was up 5%). The interim dividend was lifted 4% to 24 cents.

The firm’s premium brands were apparently doing well, and chief executive Alan Clark told us of “…revenue and margin improvements amid mixed trading conditions“.

I can see the share price performing more modestly over the next few years — we can’t really expect above-average appreciation to continue for long at a P/E of 24. But as far as profits and dividends go, SABMiller is well positioned to carry on in its winning ways as the world’s economies continue to improve.

Verdict: I’ll drink to that!

And finally...

SABMiller's dividend yield might not be high, but the annual payment has been steadily lifted over the past few years and it looks reliable. If you want to learn how to identify great long-term dividends, have a look at the new Motley Fool report "How To Create Dividends For Life", which gives you 5 Golden Rules for Building a Dividend Portfolio.

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> Alan does not own shares in SABMiller.