Today I am looking at why I believe alcohol giant SABMiller (LSE: SAB) (NASDAQOTH:SBMRY.US) is ready to crack open stunning shareholder returns.
Emerging markets continue to bubble
Despite the effect of continued sales pressure in traditional Western marketplaces, SABMiller’s growing prowess in developing markets is helping to drive turnover skywards. Indeed, the firm noted that organic net producer revenues rose by 4% during September-December at constant currencies, thanks to “the combination of pricing and volume growth particularly in Africa, Latin America and China.”
The company saw revenues surge 5% in its largest single market of Latin America, while sales rose by 8% and 7% in Africa and South Africa respectively. And in the Asia Pacific region net producer revenues advanced 6% during the three-month period.
I fully expect the firm’s accelerating exposure to these regions to drive long-term sales performance, as disposable income levels and population growth look set to head skywards.
Innovation advances to bolster growth
Indeed, the supreme reputation and pricing power of SABMiller’s beer labels, which includes the likes of Miller and Peroni, is spearheading the company’s push into these new geographies. But SABMiller is not content to rest on its laurels, and is ploughing vast amounts of capital to boost its place in the premium beer market — the next big growth sector — and adapt to changing consumer trends.
The firm told industry publication marketingweek.co.uk in recent days of its plans to launch a suite of fruitier and sweeter products in order to tempt wine and spirits drinkers, and is conducting extensive research into alcohol levels, colour and smell in order to develop a stable of ‘alternative beers.’
Earnings predicted to keep rolling higher
SABMiller has managed to keep earnings rolling steadily higher in recent years, as the effect of strong emerging market demand for its market-leading labels — not to mention the defensive nature of alcohol consumption — has kept group revenues moving in the right direction. Indeed, the business has seen earnings rise at a compound annual growth rate of 14% since fiscal 2010.
Although anticipated growth of 3% in the year concluding March 2014 represents a marked slowdown from previous levels, the business is expected to get growth back on track thereafter. City analysts expect a 9% increase next year to return to double-digit territory in 2016 with an 11% rise.
And these figures leave SABMiller dealing on a reasonable P/E rating of 19 for 2014, and which falls to 17.4 and 15.6 the following two years. This tallies up favourably against a prospective average of 19.8 for the entire beverages sector.
> Royston does not own shares in SABMiller.