Global drinks maker SABMiller (LSE: SAB) has an enviable record of share price growth, having beaten the FTSE 100 for 12 straight years up to 2012. It wasn’t until 2013 that it failed to repeat the feat, but it’s back on track this year with a 16.4% rise so far in 2014 to 3,547p. Overall, SABMiller shares have four-bagged over the past decade.
Compared to that, a ten-year rise of 160% from rival Diageo (LSE: DGE) to 1,962p seems almost modest, even though it still seriously trounced the FTSE, which didn’t even manage 50%. But if you’re thinking of buying into a boozer, which of these is better?
Coke bottles
Well, SABMiller pulled off a bit of a coup this week after combining its non-alcoholic bottling operations in South Africa with Coca-Cola and Gutsche Family Investments to form Coca-Cola Beverages Africa which “will serve 12 high-growth countries accounting for approximately 40 per cent of all Coca-Cola beverage volumes in Africa“.
And while we might be more familiar here with beer brands like Pilsner Urquell, Peroni and Miller, it’s easy to forget that SABMiller only gets around 2% of its turnover from the UK and 1% from the USA — its home market of South Africa accounts for 20% with Colombia coming a close second at 17%.
Against that, a full 50% of Diageo’s turnover comes from North America and Western Europe, so there’s not actually much head-to-head competition in the same markets.
A nice drop
A look at the the two companies’ brand portfolios is illuminating too. While SABMiller is best known for its beer empire, Diageo’s key brands are mostly spirits — with Johnnie Walker, Smirnoff, and Gordon’s Gin amongst them.
Which stock is showing better fundamentals?
Perhaps unsurprisingly, being the quality companies that they are, the two are on relatively high forward P/E valuations — SABMiller is on 22.5 for the year ending March 2015, and Diageo is on 20.3 for June 2015. Both have strong records of earnings growth, with Diageo’s briefly interrupted by a 7% fall in 2014 and with no growth predicted for the current year.
Diageo is offering a slightly better dividend yield, at around 2.8% against SABMiller’s 2%, but the difference is relatively minor — there’s really nothing to choose between them on valuation grounds.
Complementary
At the end of it all, I don’t really see these two companies as competitors for an investment choice — in fact, I think the two could complement each other quite nicely in a portfolio, in terms of both product ranges and geographic coverage.
They’re both exceedingly good at what they do, and I can see them both continuing to reward shareholders well in the coming decades.
