The alcoholic beverages sector is a relatively appealing place to invest. That’s because global demand for alcoholic drinks is on the rise, with emerging markets in particular offering a very lucrative long-term growth path as rising incomes impact positively on the sector.
Furthermore, the alcoholic beverages sector also offers a relatively high degree of resilience and consistency, since consumers tend to buy such products whether there is economic rain or shine, thereby providing the companies involves with more stable top and bottom lines than many of their index peers.
Of course, the sector has enjoyed a very interesting year, with AB InBev’s proposed takeover of SABMiller (LSE: SAB) dominating headlines. The deal would see the two largest beer companies in the world unite to create a mind-bogglingly large company which would dominate the global beer market and account for around a third of all beers sold across the globe.
As such, the combined company’s long-term profitability could rise at a rapid rate as it benefits from vast economies of scale, huge synergies and provides a degree of stability which has not yet been witnessed within the sector.
The problem, though, is that it is not yet a done deal. It must pass competition commissions across the globe and this appears to have dampened investor sentiment in SABMiller’s share price. As a result, it is trading significantly below than the £44 per share in cash being offered by AB InBev, with SABMiller’s shares currently priced at just over £40 each.
Short-term investors, therefore, may see an opportunity to buy now on the premise that the deal will go through and they will receive a 10% gain. However, the reality is that the acquisition process is likely to be drawn out since it involves so many different competition commissions (or their equivalent) across the globe. And, should the deal fall through, SABMiller’s shares could fall back to the £30 level seen prior to the offer being made.
A better option, therefore, could be to buy a slice of Stock Spirits (LSE: STCK). It produces and distributes a range of spirits in Central and Eastern Europe and, while it lacks the global dominance and diversity of SABMiller, it is forecast to increase its bottom line by 11% next year. This rate of growth, when combined with a price to earnings (P/E) ratio of 15, equates to a price to earnings growth (PEG) ratio of just 1.35, which indicates that capital gains could be on the horizon.
Certainly, Stock Spirits has endured a disappointing current year thus far. Its performance in Poland, for example, has been very poor and it has suffered from supply chain disruption as well as aggressive competitor pricing following the excise tax increase in January. However, in the second quarter of the year its performance in Poland improved significantly and, with its other markets progressing in line with expectations, now could be a good time to buy a slice of the business for the long term while investor sentiment is somewhat downbeat.