So, SABMiller (Nasdaq: SBMRY) put out a quick trading update today covering volumes for the first half of the year. SAB served up a surprise, with 1% first-half volume growth, which translates into about 3% growth in the second quarter.
Expectations were pretty consistently in the 0-1% and 1-2% range, respectively, so this was a modest beat for SAB. Interestingly, they had a strong quarter in China (which is a low-margin market) and South Africa (which is a very profitable market). Actually, the only market that was not better than expected for them was the U.S. That is not all that surprising - iffy long-term performance was part of the motivation for forging the relationship with Molson Coors (NYSE: TAP) a little while ago.
SABMiller is an unusual company for such well-known brands - it is strong in the growth areas of the world (Africa, Asia, LatAm, Eastern Europe) and relatively weak in the mature, slow-growth markets (W. Europe, North America). That is a big part of why I bought the stock years ago and continue to hold it - SAB is focusing most of its attention on markets where there is a lot of room for market share gains and overall per capita consumption growth.
I suspect that I'm closer to the end of time holding this stock than the beginning, but there still looks to be enough room to run to be worth hanging on for a while. I think the company can deliver quite a few years of high-single digit (if not low-teens) free cash flow growth, and that would make the stock undervalued by about 10%. That is not a lot to get excited about, and not enough for me to suggest others jump in ... but it is enough for me to hang on for now. I might look at this one as a source of cash, though, if I decide to pull the trigger on something like Abbott (NYSE: ABT) or Becton Dickinson (NYSE: BDX (or some new idea altogether).
Disclosure - I own shares of SABMiller
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