SABMiller has already seen its share price fall

SABMiller has already seen its share price fall

For the past ten years, SABMiller has been a favourite of investors looking for strong returns in the beer industry. A combination of good exposure to fast-growing emerging markets and a willingness for M&A has seen the brewer post double digit earnings growth since 2004.

However, according to a detailed note on SABMiller from analysts at Nomura, those days may be over. As we head towards 2016, Nomura says, investors can expect much more moderate growth as some of the factors that made SABMiller so attractive start to fade away.

Strong beer growth is expected to remain in Africa and, to a lesser extent in South America, however core SABMiller markets South Africa and Australia will slow, Nomura says. Europe, meanwhile, despite a small turnaround, will continue to drag earnings, and the US is likely to see more moderate growth than it has in the past four years.

The lack of drive from these key growth drivers for SABMiller, Nomura argues, will hamper the brewer for the next two years.

Further drag will come from the foreign exchange market, a former tailwind for SABMiller that has turned 180 degrees, Nomura says.

Lastly, there is SABMiller's acquisition appetite.  The analysts argue this has diminished in the wake of a spate of takeovers and mergers in the overall beer category. Nomura points to three possible targets for the UK-based brewer - Molson Coors, Anadolu Efes and Castel - but asks if there is a possibility SABMiller could be on the acquisitions menu itself, with Anheuser-Busch InBev lurking in the background. Speculation that has been doing the rounds for many years now

But what will the upshot of a slowdown in earnings growth be for SABMiller?

Nomura says SABMiller could be facing a return to the days of 1999-2003, when earnings were flat. The analysts acknowledge SABMiller was a very different company back then - the London-listed SAB only merged with Miller Brewing in 2002 - but says the “period serves to highlight the impact on both earnings and share-price performance of a material emerging market headwinds”.

The brewer has already seen stock market softness, with its share price down 9.5% since September compared to a European beverages sector that is down 3.5%. Investors will be on alert.

They say nostalgia is a growth market these days, but a return to the past may prove bad business for SABMiller.

Expert analysis

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