Is Now the Time to Buy SABMiller?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at SABMiller (LSE: SAB  ) (NASDAQOTH: SBMRY  ) to determine whether you should consider buying the shares at 2,800 pence.

I am assessing each company on several ratios:

Price/Earnings, or P/E: Does the share look good value when compared against its competitors?

Price/Earnings to Growth, or PEG: Does the share look good value factoring in predicted growth?

Yield: Does the share provide a solid income for investors?

Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Price

3-Year EPS Growth

Projected P/E

PEG

Yield

3-Year Dividend Growth

Dividend Cover

2,800 pence

34%

18.6

1.3

2%

55%

2.3

The consensus analyst estimate for next year's earnings per share is $2.37 (up 14%) and dividend per share is $1.02 (up 12%).

Trading on a projected P/E of 18.6, SABMiller appears cheaper than its peers in the beverages sector, who are currently trading on an average P/E of around 24. SAB's P/E and mid-double-digit growth rate give a PEG ratio of around 1.3, which implies the share price is slightly overpriced for the near-term earnings growth the firm is expected to produce.

Offering a 2% yield, the dividend is below that of the wider beverages sector. However, SAB has a three-year compounded dividend-growth rate of 55%, implying the payout could soon overtake the firm's peers.

Indeed, the dividend is more than two times covered, giving SAB plenty room for further payout growth.

SAB is cheaper than its peers but offers a lower yield
Of all industries available to investors, I believe the alcoholic drinks industry, in which SAB operates, is fairly immune to the obvious economic headwinds.

Indeed, I can see some of this immunity within SAB's most recent half-year report. SAB reported a 12% rise in first-half profits, which was supported by the acquisition of Fosters and strong growth in Latin America. I can see the company also benefited from cost savings. However, raw-material costs and adverse foreign-exchange movements in Europe and Africa did affect margins.

All that said, SAB is suffering from the economic headwinds in Europe -- profits in Europe fell 10% during the first half of the year. Still, this decline was offset mostly by the acquisition of Fosters.

Including the performance of Fosters, first-half beer volumes were up around 4% and other alcoholic drink volumes grew 12%. Soft-drink volumes were up 6%.

Worryingly, though, SABMiller has a huge debt pile -- with debt reaching around 70% of shareholder equity this year. This debt has been accumulated I believe through strategic acquisitions. However, I can see SABMiller has started reducing its borrowings -- with net gearing down around five percentage points during the latest half year.

Anyway, taking into account SAB's continuing growth and low valuation to its peers, I believe now looks to be a good time to buy SABMiller at 2,800 pence.

More FTSE opportunities
As well as SABMiller, I am also positive on the FTSE shares highlighted in "8 Dividend Plays Held By Britain's Super Investor." This exclusive report reveals the favorite income stocks owned by Neil Woodford -- the City legend whose portfolios have thrashed the FTSE All-Share by 200% during the 15 years to October 2012.

The report, which explains the full investing logic behind Woodford's dividend strategy and his preferred blue chips, is free to all private investors. Just click here for your copy. But do hurry, as the report is available for a limited time only.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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