Africa Sales Boost SABMiller Prospects

Brewer SABMiller remains a strong business, say analysts, with a wide moat based on its cost advantage in Africa and an impressive growth prospects in emerging markets

Philip Gorham 24 March, 2015 | 11:13AM

Over the past few years, SABMiller (SAB) has been one of the most compelling emerging markets stories in our consumer defensive coverage universe. It remains a strong business, with a wide moat based on its cost advantage in Africa and an impressive growth profile from its broad emerging markets presence; about 80% of earnings before tax. However, its margins lag those of local rival AmBev in the key emerging markets of Latin America, and we think there are structural barriers to the margin gap being closed in the medium term.

The first issue preventing a closure of the margin differential is scale. Brazil, where AmBev (ABEV3) has a 63% share, is the third largest market in the world by total volumes and is by far the largest beer market in Latin America, with total 2013 consumption of 134 million hectolitres. For context, the second-largest market was Colombia, where SABMiller operates a near-monopoly 98% market share, with 20 million hectolitres, and Mexico consumed seven million hectolitres.

This scale and concentration of market share gives AmBev a wide economic moat, in our opinion, a cost advantage that SABMiller is unlikely to replicate in its much smaller markets in the region.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Ambev SA14.32 BRL0.00

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Philip Gorham  

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