Should You Buy SABMiller Today?


LONDON -- Although cross-market risk aversion has dented investor thirst for SABMiller in recent days, the beverage giant has still clocked up a 22% gain in the year to date and hit record highs above 3,500 pence in the process. And just today, Credit Suisse plonked a 4,000 pence price target on the company's stock, providing plenty of upside from current levels.

I am convinced that SABMiller -- whose stable of more than 200 beer brands include Peroni, Grolsch, and Pilsner Urquell -- should continue to drive revenues skyward as it ramps up activity in emerging markets around the globe.

Latin America in the crosshairs
The company announced in January's interims that group turnover leapt 17% in the third quarter, or 8% on an organic basis, with total volumes rising 6% on-year. Global lager sales rose 2%, pushed by Latin American growth of 6% and consumption in Africa jumping 4%, even though European demand rose just 1% and Chinese drinking fell 3% because of poor weather.

SABMiller continues to target developing geographies to bolster sales in coming years, and yesterday it announced plans to significantly improve its footprint in Latin America by targeting the region's black market. Around 80% of consumers here are considered "low income," and the company intends to attract these customers away from illegal alcohol by introducing larger, more cost-effective bottles, providing excellent growth opportunities.

Elsewhere, the lager maker announced last month that its China Resources Snow Breweries joint-venture intends to acquire the brewery business of Kingway Brewery Holdings for $864 million, boosting its presence in some of China's richest and fastest-growing regions.

Go with the earnings flow
Earnings-per-share are expected to rise 4% to 147 pence in the year ended March 2013, according to broker estimates, before taking off thereafter -- growth of 18% and 12% are penciled in for 2014 and 2015 correspondingly, to 173 pence and 194 pence.

The drinks manufacturer currently changes hands on a P/E ratio of 23.4 for the current year, trading at a premium to a forward earnings multiple of 20.1 for the wider beverages sector. However, this is set to dip considerably as earnings ramp up, with readings of 19.8 and 17.7 expected this year and next.

Tap in to SABMiller's dynamic dividend policy
On top of SABMiller's exciting earnings acceleration story, the firm's extremely progressive dividend policy sweetens the investment case in my opinion. Although yields are expected to remain below the 3.5% average for the U.K.'s 100 largest listed firms -- readings of 1.8%, 2.2% and 2.4% are expected in each of the next three years -- investors can be confident of readings heading much higher further out.

Analysts predict a dividend of 62.8 pence this year, before rising to 73.6 pence in 2014 and 82.7 pence in 2015. And these are extremely well protected, with coverage of between 2.3 and 2.4 times expected through to 2015.

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