SOUTH AFRICA – For all its acquisitions in “developed” markets across the globe, every set of results from SABMiller must remind shareholders just how much of an emerging-market player the group is.

It is this that not only makes it attractive to shareholders, but also a tempting target for AB Inbev – the largest beer group in the world.

Over the years, the unrelentingly strong performances from Africa and Latin America have more than made up for some or other disappointment in SABMiller’s European, US and Asia Pacific operations.

Commenting on the third-quarter trading update released this week, group CEO Alan Clark noted: “During the quarter, our Latin America and Africa businesses continued to grow both volumes and revenues, together with Europe, while more difficult trading conditions, particularly in China, held back the overall group performance.”

Whether it was intended or not, SABMiller’s decision to include South Africa’s figures with the rest of Africa helps highlight the importance of Africa in the group’s businesses. In the first half of financial 2015 – to end-September – Africa accounted for $3.6-billion of the group’s $14-billion net producer revenue: Latin America accounted for $2.9-billion.

In terms of earnings before interest, tax and amortisation, Latin America dominates, with a $1-billion contribution to group total EBITA of $3.3-billion. Africa is a strong second, with a contribution of $818-million after a $46-million currency translation hit.

The emerging-market story is not only SABMiller’s biggest attraction as an investment: it is also regarded as the primary reason why AB Inbev is keen to acquire SABMiller.

Without the growth potential offered by emerging markets, there is little to justify the soaring share prices enjoyed by the major global beer groups. Indeed, following last year’s run, the SABMiller share price can be justified only by the assumption that AB Inbev is prepared to pay generously for the exposure to Africa and Latin America that would come with the acquisition of SABMiller.

Mark Saner of stockbroker Imara Reid contends that SABMiller is too expensive for now and, “barring any corporate action (take over or be taken over), we anticipate the price to continue to come down in the short term”.

Saner says the trading update reinforces the trend that Africa and Latin America remain the main contributors to growth in revenue and volumes.

“The more mature markets of Europe and North America are likely to continue their flat to slow growth for the foreseeable future while the ‘one-off’ weather events in China should see an improvement in that region during the next quarter.” Australia, says Saner, is likely to continue to disappoint.

Although Latin America was a key part of SABMiller’s acquisition strategy after 2002, Africa has been a fundamental element of SABMiller’s growth plans since the early ’90s, well before the group transferred its primary listing to London in 1999. SABMiller was not only one of the early movers in Africa but, outside the resource sector, it has been one of the most successful.

Chris Gilmour of Barclayswealth and investment management says last year’s tie-up with Coca-Cola is representative of the strategic thinking behind SABMiller’s African growth strategy. “They have an integrated beverage portfolio, which means they are able to offer non-alcoholic beverages in Muslim regions and beer in non-Muslim regions.”

As for the frequently touted tie-up with French group Castel, which has extensive, valuable beer assets in Africa, Gilmour says that it would make SABMiller even more attractive to AB Inbev, because SABMiller would then be unassailable on the continent.

January 25, 2015;