Steady SABMiller a good bet in emerging markets

SABMILLER continues to rank among the multinationals likely to perform best in emerging markets over the long term.

SABMILLER continues to rank among the multinationals likely to perform best in emerging markets over the long term.

Emerging markets, with their rapidly urbanising populations and growing disposable income, have become a focal point for investors wanting to ride on the profits of consumer goods companies that are either entrenched in, or moving into, these developing countries.

However, not all companies that offer staples to consumers in emerging markets will be equally capable of coping with the challenges these territories pose.

Independent investment research company Morningstar released its Consumer Observer report for September and identified the companies that have the sharpest competitive edge in five key emerging markets.

Morningstar's researchers named China, India, Latin America and Brazil, Central and Eastern Europe (including Russia) and Africa as the regions offering the greatest potential from a consumer demand perspective. They analysed these regions' population growth prospects, wealth creation drivers, consumer industry structures and their regulatory environments. Some companies had superior strategies for competing in these markets in that their brand portfolios spanned multiple pricing tiers and they had extensive distribution networks, the researchers said.

Morningstar's research team fed data on more than 100 producers of consumer staples into a matrix of pros and cons relating to demographics, wealth creation potential, industry structure and geographical constraints to emerge with some key investment themes.

For investors looking for consumer-staples names that are less reliant on a single economy and can withstand an economic shock in a region, those offering greater geographic diversity include Coca-Cola, Guinness and Johnnie Walker producer Diageo, Unilever, which makes Rama margarine, Handy Andy household cleaner and Lipton tea among hundreds of other products, and Philip Morris International, the maker of Marlboro and other cigarettes.

But there is a trade-off with geographic diversification: reduced exposure to regions with faster-growing populations and higher disposable income potential. Multinationals such as hair and skin products business Marico, Chinese alcoholic beverages producer Wuliangye Yibin and tobacco producer ITC offer exposure to these regions to investors who want to bolster the growth component of their portfolios, the researchers said.

"Companies that have diversified their geographic exposure but also established more concentrated positions in certain markets include Yum Brands [China], SABMiller [Africa] and United Breweries [Latin America]," the report said.

These companies might "be attractive for investors looking for both growth and diversification investment attributes".

By region, the researchers said Wuliangye Yibin, Want Want China Holdings and Yum Brands had the best prospects in China. But ITC, Coca-Cola and Unilever are poised to excel in India.

In Latin America, the researchers rated United Breweries, Ambev SA and Coca-Cola tops, whereas in Central and Eastern Europe they expected Carlsberg, Philip Morris International and Imperial Tobacco Group to outperform the rest.

In Africa, Yum Brands, Diageo and Unilever were picked as the consumer-staples stocks to back.

The researchers said that Africa had an "exceptionally long runway for consumer spending", with the possibility that Africa's population could eventually rival that of China and India together.

The shift from informal to formal economic participation by such a large population, with improved ease of access to consumer goods and legislative reform would probably attract large-scale investment by consumer-goods producers, the report said.

The researchers said SABMiller in many parts of Africa had monopolistic control over the beer and soft drinks market.