When I think of international brewer SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US), two factors jump out at me as the firm’s greatest strengths and top the list of what makes the company attractive as an investment proposition.
1) Emerging-market penetration
Last year, around 63% of SABMiller’s revenue came from emerging regions. 27% came from South and wider Africa, 20% from Latin America, and 16% from the Asia Pacific area. The rest of the firm’s revenue came from Europe and North America in almost equal proportion.
That skew in favour of faster-growing parts of the world is encouraging and makes the firm an attractive growth proposition. In a recent update, the firm reports African revenue up 8%, Asia Pacific up 6% and Latin America up 5%, a decent performance. That result is countered by North America up just 1% and Europe down 6%.
If SABMiller’s business keeps its growth momentum in emerging markets going forward, the lacklustre results from Europe and America will become statistically less important. Any recovery there will be a bonus, but SABMiller is past depending on it.
2) Consumable product
Alcoholic beverage consumption has great repeat-business credentials. Beer is a consumable product with the added investor-attraction of having addictive qualities. The firm is thriving by attracting thirsty consumers to its 200 or so region-specific brands such as Miller Lite, Castle and Grolsch.
The great joy of firms with consumable products is that they tend to deliver stable and predictable cash flows, which fuel growth and dividend payments, as we can see in SABMiller’s financial record:
|Year to March||2009||2010||2011||2012||2013|
|Net cash from operations (£m)||2,183||3,277||3,043||3,937||4,101|
|Dividend per share (cents)||58||68||81||91||101|
I’m looking forward to the full-year results due around 22 May to see if there has been further progress on cash flow.
SABMiller’s brand-driven growth leads to a strong economic franchise as customers return repeatedly to buy the firm’s brews.
Kevin does not own shares in SABMiller.