Today I am looking at four great ways to play lucrative emerging markets.
Household goods giant Unilever (LSE: ULVR) is already a big player in developing regions the world over, and the business generates around 58% of total revenues from such territories. The London firm is managing to hurdle the impact of economic cooling on consumer spending, and saw underlying sales growth of 6% in April-June speed up from 5.4% in the prior quarter.
Promisingly Unilever advised that emerging market growth “was driven by both volume and price,” and this comes as little surprise — the diversified manufacturer is chucking vast sums at industry-leading brands, from Cornetto desserts to Dove soap, to enhance marketing activities and product development. The City expects Unilever to record a 5% earnings bounce in 2015, resulting in a P/E of 20.2 times. Given the firm’s compelling growth story I believe this is a snip.
Fashion brands the world over are aggressively rolling out their wares in new territories, fuelled by the insatiable demand of a rising middle class for the latest ‘luxury’ and ‘hip’ fashion brands. These favourable dynamics have certainly boosted the outlook for London fashion house Ted Baker (LSE: TED), the business having announced last week that group revenues rose 24.5% in the 28 weeks to August 15, to £226.8m.
Asian retail sales leapt 31% in the period, and the business is looking to keep the tills ringing with new store openings — the business opened directly-owned outlets in Hong Kong and South Korea in the period, and several licensee shops in Azerbaijan, Dubai, Qatar, Saudi Arabia, Taiwan and Thailand. The number crunchers expect Ted Baker to record a 19% earnings rise in the year to January 2016, resulting in a P/E multiple of 33.7 times. But with the bottom line anticipated to advance by double-digits well beyond next year, I believe this premium is fully justified.
It comes as little surprise to me that drinks goliath Anheuser-Busch InBev is making admiring glances at SABMiller (LSE: SAB). The brewer is a huge player in the lucrative African market, and generates around 28% of total sales from this one territory. And the continent promises plenty of upside as income levels rise — as the firm explained in March, “Africans drink nine litres of beer per head per year, compared with a global average of 45.”
In total, SABMiller sources 65% of total net producer revenues from Africa, Asia and Latin America combined, achieved through hundreds of local and multinational brands such as Miller, Castle and Peroni. And the company is also expanding its operations in these regions to cotton onto surging alcohol demand. The City expects SABMiller to endure a 7% earnings dip in 2015 due to adverse currency movements, producing a P/E ratio of 25.3 times. But growth is expected to take off thereafter along with with rising consumer spending clout.
Hutchison China MediTech
I am convinced that Hutchison China MediTech (LSE: HCM) — or ‘Chi-Med’ — should reap the rewards of increased healthcare spend in emerging regions. Critically the business, which is aiming to become China’s biggest pharmaceuticals maker, secured patent protection in July on its SXBXP cardiovascular drug up until 2029. The product is responsible for nine-tenths of total revenues, so the extension allows the business to get its raft of next-gen superstars to market in the coming years.
Chi-Med unveiled Phase II proof-of-concept data for its fruquintinib lung and colorectal cancer treatment at the European Cancer Congress late last month, and is ramping up R&D spend to bring its products online — it now has 17 clinical trials on the go versus 10 at the midpoint of 2014.
Earnings are expected to gallop 174% higher in 2014, creating an eye-watering P/E multiple of 123.1 times. But a sub-1 PEG reading, at 0.7, illustrates Chi-Med cheapness relative to its growth prospects. And I believe the business is a terrific way to gain long-term exposure to surging medicine demand in China.
Royston Wild owns shares of Unilever. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.