SABMiller: the beer necessities

Emerging markets are about as fashionable as Watney's Red Barrel right now. But when they return to favour, are shares in brewing group SABMiller the right way to play the emerging consumer story from the safety of a developed-world exchange?

The brewer, which has a South African heritage, tells a plausible enough story. Around 70 per cent of its revenue comes from Asia, Africa and Latin America, where middle-class incomes are growing but per-capita beer consumption is way below US or European levels.

To this it has recently added more muscle in soft drinks, via a joint venture with Coca-Cola in Africa.

Revenues in local currency terms grew by useful increments in the year to March: up 7 per cent in Latin America and 9 per cent in Africa. Even in mature markets, there was a little growth, helped by what the brewer terms "romancing" - giving key brands such as Pilsner Urquell and Miller Lite some extra love.

At group level, the rampant US dollar reversed all of this progress; sales in dollar terms fell slightly. But many investors are unlikely to care. A headwind in the operational business is a tailwind for them; 72 per cent of the free float receives dividends in sterling, and will enjoy a near 20 per cent increase against a 9 per cent rise in the dollar payout.

SABMiller's returns are reasonable. Margins improved in Latin America, Europe and North America, but fell in Asia and Africa. At group level, the return on capital is around 17 per cent; comparable with, say, Diageo but less than Unilever or Nestle, other popular plays on emerging consumer growth.

Consolidation is another imponderable. SABMiller has in the past made overtures to Heineken. Such a deal - rejected by the Dutch group - would have given it a dominant global beer brand. And SABMiller is itself seen as a potential target for AB InBev, for which its emerging market exposure would be a valuable addition.

That said, there is no obvious sign of a bid premium embedded in the share price, which is at comparable levels relative to earnings as peers. Two big shareholders own more than 40 per cent of the group's equity.

SABMiller is a decent long-term play on emerging markets. But anyone buying in expectation of a frothy takeover premium could end up with the investment equivalent of a flat pint.

Email the Lex team at [email protected]

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation