Financial analysis of SABMiller and recommendations to investors

Published:

Annual report Summary


SABMiller Plc

Index:

  1. Front page
  2. Index
  3. Introduction, general information
  4. Directorship
  5. Audit report of SABMiller
  6. Return ratios, market
  7. NAV, solvency and liquidity
  8. Gearing and risk, cash flow potential investment
  9. bibliography

Introduction:

These where the findings of SABMiller Plc annual report of financial year 2014, from my report I will conclude whether or not SABMiller is a viable financial investment when compared to alternate investment options. I have covered all information regarding returns of investment into SABMiller, also I have investigated trends and market values of the share price of SABMiller over two weeks to full grasp the strength of the company on the international stage. SABMiller has shown surprising promise and versatility in the market place of alcohol, their undeniable creative strengths was a major role in my decision to understand and interpret the company’s role and standing in the global rat race.

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General information:

SABMiller is a beer and soft drinks company, having branches in every continent with leading brands respectively. Its annual financial year end is every 31st March, with its most recent AGM meeting hosted on July 24. SABMiller is a dynamic company with a strong focus towards strategic growth and development, their major focus is towards creating sustainable local growth and long-term partnerships, they believe this to be accomplished through investing in talent, innovation and understanding local insights and global reach. They have determined that; reinforcing quality, extending brand recognition, innovation products and contributing to local businesses are the stepping stones to further strengthen their position in the current and future model of conventional business. Future projects expected from SABMiller are community orientated with high hopes of creating sustainable projects to uplift areas affected my poverty. SABMiller’s investment into local business has injected much needed economic growth into regions over looked by other companies.

Directorship:

The company is managed by a board of fifteen directors. Alan Clark is Chief Executive who is part of the corporate accountability and risk assurance committee (CARPAC) as well as part of the executive committee. Jamie Wilson is the Chief Financial Officer also part of CARPAC and the executive committee. John Manser CBE is the chairman of the board, part of the nomination committee and CARPAC. Guy Elliott is the deputy chairman and Senior Independent Director. Alan Clark is acting Managing Director. The Directors report was compiled by and submitted with required information under the Companies Act 2006. The report covers Corporate Governance, Shared capital, Annual general meeting, Purchase of own shares, Political Donations, research and development. As a shareholder the following would be of interest; dividends as I am then able to predict annual earnings from my investment, shared capital to ensure my share value is not diluted, and Purchasing of own shares as to make sure directors maintain transparency. The director’s report acts to reassure all stakeholders through the explanations and interpretations of the profit/loss, the current state of affairs or any other matter that may be material for the stakeholders by the directors. This ensures that no matter is left unexplained and to strengthen stakeholder confidence.

Audit report of SABMiller:

SABMiller is audited by a commissioned auditor through the audit committee composed of the board of directors. PricewaterhouseCoopers LLP was elected to audit SABMiller and through the entire report they found the financial results to be a true and fair review of the state of the group’s and company’s affair as at march 31st 2014. The general findings of the audit report have found no area of concern or need of further explanation. their audit was in accordance to the Companies Act 2006 and found no deviation set out by Companies Act 2006. Their report indicates fair and legitimate company earnings and suspects no fraud. The annual external audit report is done to reassure stakeholder confidence and to highlight any areas for concern, this report is done to directly inform investors, shareholder and any other stakeholder.

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Return ratios:

EPS- earnings per share

Earnings divided by number of shares in issue

242.0 US cents

2420 RSA cent

DPS- dividends per share

105 US cent

1050 RSA cent

ROE- return on equity

\mathrm{ROE} = \frac{\mbox{Net Income}}{\mbox{Shareholder Equity}}

105%

These are the return ratios of SABMiller of the financial year of 2014 ending March 31st 2014. These are positive ratios and show a return higher then that of a bank investment, from these ratios we can determine the expected return on an investment into SABMiller. These ratios would attract investment and new shareholders, especially a ROE of 105% which is an outstanding return on an investment

Market:

C:\Users\chris\Downloads\qshare_chart.png

Market price is currently at R64.00

This is a fair price for a share due to a high return and stable business model.

NAV:

The net asset value of SABMiller is calculated by the sum of its assets minus its liabilities, SABMiller’s is at 0.00 this is a standard result and is the normal amount expected

Liquidity and solvency:

(Liquidity Ratios)

Net Working Capital to Total Assets-8.38%

Current Ratio0.55

Quick Ratio (Acid Test)0.43

Liquidity Ratio0.21

Cash & Equiv/Current Assets37.85%

(Solvency Ratios)

Enterprise Value66,869.14m

CFO/Sales0.15

CFO/Attributable Profit1.01

CFO/Assets0.06

CFO/Debt0.13

Total Debt/Equity Market Value0.27

Total Debt/Sales1.18

Total Debt/Pre-Tax Profit5.45

Total Debt15,764.77m

Total Debt/Net Current Assets-5.83%

These are all positive indicators of solvency and liquidity, SABMiller should have no issue in paying off all debts and liquidating itself quickly.

Gearing and risk:

The gearing ratio is at 27%, it is worked out by using the debt to equity ratio. This is a positive percentage and allows further loans without harming the company financially. I believe if further funding is required; a loan within a reasonable interest rate is acceptable.

Cash flow:

SABMiller adequately manages cash flow and is a major priority to the SABMiller directors, they have used cash to; purchase property, plant, equipment, investments and repayment of borrowings. They receive cash through proceeds of issued shares, dividends received from investments, proceeds from borrowings and from sale of intangible assets. SABMiller has a free cash flow of US$2,563m. This amount is considerable lower from its previous year of US$3,230m showing a tighter grip of cash flows in and out of SABMiller.

Investment potential:

SABMiller has shown strong growth over the last 5 years, I expect share price to increase and SABMiller to expand fields and brands even further improving upon their already successful business model. I would defiantly consider investing if I was able to purchase a considerable amount of shares to solidify my position and yield the greatest amount of returns without too great of a risk, that being said, it is however unlikely SABMiller would expect investment from small parties due to the price and amount of shares already in issue, it is also unlikely to find a broker willing to sell a large enough amount of shares to justify investment. SABMiller is a global brand with global recognition, if their innovative ideas and projects take off over the next few years and provide what they promise of sustainable community projects it is impossible to determine what share price will look like, but if trends are anything to follow expect a increase in price and of value of already purchased share.

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Bibliography:

All information was attained through use of the SABMiller annual financial report as well as through the JSE, where the graph was provided.

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