Can SABMiller plc Make £5 Billion Profit?


Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to push profits up to levels not seen in the last few years.

Today I’m looking at SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US) to ascertain if it can make £5bn in profit. 

Have we been here before?

A great place to start assessing whether or not SAB can make £5bn in profit is to look at the company’s historic performance. Unfortunately, SAB has never been able to make £5bn in profit, but it would appear that the company is well positioned to do so.

Indeed, for its 2012 financial year, SAB reported an adjusted pre-tax profit of £3.1bn and this jumped 13% to £3.5bn for 2013. These adjusted profit figures exclude exceptional items relating to acquisitions.   

But what about the future?

With an adjusted pre-tax profit of £3.5bn reported for 2013, SAB needs to increase its pre-tax profit by around 43% in order to reach our target of £5bn. But for SAB this should be an easy task, as since 2009 the company has managed to increase its revenue and income by approximately 15% per annum. This implies that even if SAB’s rate of growth were to slow, to say, 10% per annum, the company would easily meet my profit target before the end of the decade.

And there is no reason to suggest that SAB won’t meet these lofty growth targets, as there are a number of upcoming catalysts that will drive SAB’s global sales over the next few years. For example, SAB will benefit from numerous major sporting events throughout 2014, including the World Cup. In addition, there are some signs that the global economy could be starting recover, which will further promote sales. Certainly, any economic growth here within the UK should increase consumers’ appetite for SAB’s beverages. What’s more, SAB’s management noted that the US beer market grew during 2012 — the first time it’s done so since 2008.

Furthermore, in the company’s interim management statement, released at the end of January, SAB reported high single-digit volume growth in all of its key emerging markets, including South Africa, Asia and Africa. Still, this strong growth was offset by weak performances within Europe and the US. However, as mentioned above, SAB’s management believes that a turnaround is underway within these key developed markets and a return to growth is expected during the next few years.

Foolish summary

So overall, SAB’s sales and income have been growing at a double-digit clip during the past five years, despite economic headwinds and it looks as if this is set to continue. On that basis, I feel that SAB can make £5bn profit. 

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In the meantime, please stay tuned for my next verdict.

> Rupert does not own shares in any company mentioned in this article.