Lager shout

SABMiller gives emerging markets thumbs up

SABMiller is defying fears that Latin America, Africa and Asia are struggling. These economies may be growing more slowly, but the developing world is still developing and the world's second-largest brewer is reaping the rewards.

The World Bank currently expects emerging market economies to grow GDP by 4.8 per cent. That is down from 5.5 per cent anticipated a year ago and 2 percentage points less than the pace in the 2003-2007 boom years. Since 2010 the MSCI emerging market equity index is ahead by only 6 per cent. The developed world equivalent is up 54 per cent.

SABMiller hardly seems to have noticed. Annual results published on Wednesday show its best growth came from Latin America, and Africa wasn't far behind. Organically generated earnings before interest, tax and amortisation rose 8 per cent in the former and 6 per cent in the latter. The numbers from Asia were less good - but it blamed summer rain in China rather than a weaker economic backdrop. The fundamentals across Asia, says SABMiller, are intact.

The brewer is not alone. Unilever, the household goods multinational which generates around 60 per cent of its revenue in emerging markets, said in its April 16 first-quarter update that it was seeing more tailwinds than headwinds.

It helps to be selling the right thing. SABMiller offers an affordable luxury with excellent prospects. SABMiller reckons, for instance, that per capita consumption of beer in Africa is currently about nine litres a year, well below the 75-80 litres in the developed world. There are also opportunities to sell more premium brand drinks, which may well bring higher profit margins.

SABMiller's full-year dividend increased 8 per cent to $1.13 per share, but there is still money to spare. Wednesday's standout number from SABMiller is the 26 per cent increase in free cashflow to $3.2 billion. That helped lop a cool $3.8 billion off its net debt, which now stands at a modest 1.6 times Ebitda.

In the past, acquisitions have featured strongly in the SABMiller story. The opportunities are rarer now that the global industry is more consolidated. With sizeable deals scarce and the balance sheet strengthened, SABMiller's shareholders may find more cash flowing their way.