This Share Has Outperformed the FTSE for 11 Years
LONDON -- My father has always been fond of telling me that if a thing looks too good to be true, it probably is. But in this case, I think he might be wrong.
This share has soundly outperformed the FTSE 100 (INDEX: ^FTSE) for 11 years. This year alone, it's up 5.7%, while the FTSE 100 is down by 5.5%. Since 2002, its shares have risen by a whopping 320%, while the FTSE has only just managed to break even with a 1.9% gain.
It is, of course, the world's second-largest brewer, SABMiller (OTC: SBMRY).
Fancy a beer?
SABMiller's U.K. brands include Miller Genuine Draft, Peroni Nastro Azzuro, and Pilsner Urquell, but its growth markets are elsewhere -- and they're growing fast, as this table shows:
Contribution to Revenue
Organic Earnings Growth, 2011-2012
Have another one!
SABMiller is investing heavily in emerging markets, and it's paying off. What's more, the statistics suggest there is more to come.
Per-capita consumption of beer in SAB's Latin American markets tends to be around 40 to 50 liters per year. In Europe and Australia, it's around 80, suggesting that as Latin Americans become more affluent, they will consume more beer! Similar logic should apply in African and Asian markets, where per-capita consumption is even lower.
SABMiller has just reported full-year revenues up by 12% to $21.7 billion -- with joint ventures contributing a further $10 billion in sales.
Underlying operating profit for the year rose by 11.7% to $3.98 billion, while profit before tax rose a whopping 54.5% to $5.6 billion, thanks to a $1 billion cash influx resulting from the sale of SAB's Russian and Ukrainian assets. This was part of a new alliance with Turkish brewer Anadolu Efes, which will be the vehicle for SAB's activities in Turkey, Russia, Central Asia, and the Middle East -- a massive market, collectively.
SAB has even given shareholders a cracking 12% dividend increase, taking the total payout for the year to $0.91 cents -- a yield of 2.4%. While this isn't income territory, it's acceptable for a share with such strong growth characteristics.
Like that other big U.K. booze share, Diageo (NYS: DEO) , SAB trades on a price-to-earnings ratio of about 17. Although this is higher than the market average, I don't think it is a problem; this is a growth share, despite its size.
The only downside to SAB's acquisition-fueled expansion is that net debt shot up by 152% last year from $7.1 billion to $17.9 billion. This was thanks to the $10.6 billion cash payment it made as part of its purchase of Foster's. Despite this, the group's debt only accounts for 30% of its 38 billion pound market cap and should be manageable.
For me, the icing on the cake is that I don't think you need to worry about timing the end of SABMiller's growth cycle.
Even if it does happen, the group's huge global footprint and efficiencies of scale should mean that it will continue to be a highly profitable business. I think that as its emerging markets mature, SABMiller will transition into a more generous dividend-payer that should remain an attractive fit in most long-term portfolios.
Let me round off by telling you the "consumer brands" sector is one of three industries reviewed in this free Fool report. I am sure this guide should be of interest to all long-term investors.
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At the time this article was published Roland does not own any of the shares mentioned in this article. Motley Fool newsletter services have recommended buying shares of Diageo. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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