SABMiller earnings on tap

Drinks giant SABMiller takes the spotlight next week with its latest set of earnings, but is the firm a promising investment?

SABMiller logo on pint glass
Source: Bloomberg

The post-2009 uptrend in SABMiller shares remains intact, although the price remains some way below the closing weekly high of £36 seen in 2013 and 2014, and also way off the all-time high around £38.60 that the shares briefly hit in mid-2014.

Nevertheless, on a PE of 20.67 the shares still look of reasonable value, even if the average for the FTSE 100 sits around the 15 level. The premium that investors pay for shares like SABMiller (and its rival Diageo) comes from international exposure and a strong suite of products. SABMiller, for example, manufactures the most popular beer in China, Snow, giving it a firm business in that giant economy.

Being suppliers to supermarkets and drinks stores, and having such global reach, SABMiller and Diageo are able to negotiate for higher prices, boosting their margins and profits.

Overall, these factors mean that the slightly higher earnings rating for these shares appears to be justified. There are points of concern, such as weaker trading in China and other parts of Asia, while the stronger US dollar was flagged up in the most recent update as another reason for weaker performance.

Despite this, earnings have steadily risen since 2010, while the dividend yield has remained steady over the same period at around 2%, with the current level of 2.4% offering a reasonable return. SABMiller has also stated its commitment to maintaining dividend payments, supported by a rising EPS figure.

2014 was a choppy year for the share price, hitting a low in February below £27 but then staging an impressive rally towards £38 over the following eight months. Since then, the shares have fallen back, although the price has found support repeatedly in the area of £31, while dips below the 200-daily moving average have been bought regularly as the shares become more attractive on a valuation basis. 

For the time being the shares remain capped by the 50- and 100-DMAs, both around the £34 level, while in the year so far buyers stepped in around £32. A rising relative strength index supports the idea that the shares are still moving higher, with an initial target at £34 and then on to the November highs around £35.50. On the downside, the 200-DMA at £33.20 could provide support, with further weakness taking us back towards £32.

It is the weekly chart that looks the most encouraging, with the confluence of the 50- and 100-week MAs supporting the price. Frequently, a convergence of two moving averages can signal the beginning of a sudden move, and in this case the evidence leans towards a bullish move higher in the direction of £36. 

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