It's conventional wisdom these days that companies that have emerging markets exposure will grow faster than those that don't. But unexpectedly downbeat news from personal products group Unilever (ULVR) last month has challenged that. Driven by currency weakness, it revealed a "weakening in the market growth of many emerging countries". That has helped push Unilever's shares down heavily in the past few weeks and it's a backdrop that looks highly relevant for brewing giant, SABMiller (SAB) - which generates about three-quarters of its profits in emerging regions. Its shares have also fallen in recent weeks, but they remain highly rated when compared to those of its rivals and its own historic rating - suggesting that more share price downside could be on the cards.
- Strong market position
- Impressive brand portfolio
- Facing emerging market weakness
- Lacklustre developed market performance
- Uninspiring dividend yield
- Shares look pricey compared to rivals
True, SABMiller's most recent trading update in July reported solid first-quarter growth in most of its emerging markets. For instance, in the three months to end-June, organic revenues on a constant currency basis grew 10 per cent in Africa (outside South Africa), 5 per cent in South Africa, and 6 per cent in Latin America. Although performance in the Asia Pacific region was weak - organic revenue fell 2 per cent. Moreover, management admitted to analysts last month that currency weakness in emerging markets - precisely Unilever's problem - will drag on 2014's expected earnings. That has led broker Numis Securities to trim its end-March 2014 earnings estimate by around 3 per cent.
SABMILLER (SAB) | ||||
|---|---|---|---|---|
| ORD PRICE: | 2,992p | MARKET VALUE: | £48bn | |
| TOUCH: | 2,992.5-2,993p | 12-MONTH HIGH/LOW: | 3,684p | 2,594p |
| FWD DIVIDEND YIELD: | 2.3% | FWD PE RATIO: | 19 | |
| NET ASSET VALUE: | 1,644¢ | NET DEBT: | 57% | |
| Year to 31 Mar | Turnover ($bn) | Pre-tax profit ($bn)* | Earnings per share (¢)* | Dividend per share (¢) |
|---|---|---|---|---|
| 2010 | 26.4 | 2.96 | 161 | 68.0 |
| 2011 | 28.3 | 2.93 | 192 | 81.0 |
| 2012 | 31.5 | 5.60 | 215 | 91.0 |
| 2013 | 34.5 | 4.71 | 239 | 101 |
| 2014* | 35.5 | 5.02 | 252 | 111 |
| % change | +3 | +7 | +5 | +10 |
Normal market size:500 Matched bargain trading Beta:0.90 *Numis Securities estimates, underlying EPS and PTP figures £1=$1.62 | ||||
SABMiller's more developed markets are unlikely to compensate for that, either. With July's trading update, management reported that "unseasonably cold and wet weather and continued weak consumer sentiment" had driven organic revenue down by 1 per cent in Europe. Overall, European lager volumes fell 7 per cent with an especially weak performance in Poland and the Czech Republic - volumes there slumped by 14 per cent and 11 per cent, respectively. While, in North America, a challenging environment and "significantly cooler weather" helped drive revenues from its MillerCoor's operation down 3 per cent in the quarter.
But there's no denying SABMiller's market dominance. It's the number one brewer in most of its African markets, for instance, and boasts a 90 per cent slice of South Africa's market. It dominates Latin America, too - from the seven Latin American markets in which it operates, it has market shares of above 90 per cent in five of them. It also has a 29 per cent slice of the US beer market, 21 per cent of China's, 23 per cent of India's and 45 per cent of Australia's. That position in Australia was generated on the back of 2011's $A10.5bn (£6.2bn) acquisition of Foster's - a deal that's expected to deliver A$180m a year in cost synergies by March 2016. SABMiller also has primary brewing operating in eight European countries and, for most of these, it's either the number one or number two player. It boasts some impressive global brands, too - including such popular offerings as Carling Black Label, Coors Light, Grolsch, Pilsner Urquell and Foster's.
