SABMiller already has a strong position in Africa

SABMiller already has a strong position in Africa

SABMiller today (7 July) confirmed that is has offloaded its 40% stake in South African gaming, hotel and entertainment group Tsogo Sun Holdings

It expects to earn around US$1bn from the sale. So what will it do with the cash? 

The firm, which has its origins in South Africa, already has a strong position in many key African beer markets. But one analyst suggests that the UK-headquartered firm could look at “bolt-on acquisitions” in an effort to boost its presence in African countries where its lacks a footprint. “The firm is the number one brewer in Mozambique, Zambia and Botswana, but has little presence in Zimbabwe, a nation encircled by those three countries,” said Morning Star analyst Philip Gorham in a note today (7 July).

“We believe that plugging gaps such as this could deliver medium-term increasing returns to scale in SABMiller's African business, thus fortifying the firm's wide economic moat.” 

Other areas it may spend in, Gorham suggests, are research and development and marketing. This would be as part of a bid to defend itself against rivals. “We expect SABMiller's top priority to be to defend its share against the encroachment of other multinational companies with an eye on Africa, such as Diageo and Heineken,” the note said. 

For example, Heineken confirmed it plans to start brewing at its third plant in Ethiopia this month. Meanwhile, in April, Diageo said it was looking to broaden its value beer portfolio in Africa

SABMiller's CEO, Alan Clark, had already indicated the funds from the Sun Holdings sale would be spent on the group's “core” African business. 

Gorham added: “We think this reallocation of capital to the core business in Africa could enhance the company's competitive advantage by growing scale and lowering average cost of production in a region in which it already possesses a strong cost advantage.” 

To read an exclusive just-drinks interview with Heineken's Africa & Middle East president, click here