Diageo plc Just Edges SABMiller plc In The Battle Of The Boozers

Who wins in the Diageo plc (LON: DGE) vs SABMiller plc (LON: SAB) fight?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

SAB MillerBooze sellers can be pretty good defensive investments during economic downturns — whatever people need to cut back on when the belts are tightening, they do seem to carry on wanting a snifter or two.

Big two

We only have to look at the big two on the FTSE 100 to see what I mean. Shares in Diageo (LSE: DGE) (NYSE: DEO.US) are up 85% over the past five years to 1,775p against a FTSE 100 that has struggled to put on 40%.

And SABMiller (LSE: SAB) (NASDAQOTH: SBMRY.US) shares have done even better, hitting a 130% rise to 3,313p!

Should you invest £1,000 in Diageo right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Diageo made the list?

See the 6 stocks

But which is better to buy now? Here’s a quick look at the two companies’ financial statistics:

Year Diageo SABMiller
EPS growth 2014 -7% +2%
P/E
19.5 20.5
Dividend Yield
2.8% 2.1%
Dividend Cover
1.85x 2.30x
EPS growth 2015*
+5% +5%
P/E
17.5 21.6
Dividend Yield
3.2% 2.1%
Dividend Cover
1.81x 2.22x
EPS growth 2016* +7% +10%
P/E
16.6 19.6
Dividend Yield
3.4% 2.3%
Dividend Cover
1.80x 2.22x

* forecast

The stronger price run for SABMiller has clearly taken its toll on fundamental valuations, pushing the P/E to 20 and more — the long-term FTSE average stands at around 14.

Great brands

But if we look at the company’s markets and brands, it’s not hard to see why its shares command such a premium. Miller, Carling, and Pilsner Urquell are well known in the UK. But the UK only accounts for 2% of SABMiller’s annual turnover — and the USA just 1%!

SABMiller’s home base of South Africa was responsible for a full 20% of 2013 turnover, with Colombia coming a close second with 17% and Australia in third place with 12%. And the company sells hundreds or brands around the world.

And yet more

But then, Diageo is in a similar position, owning a good number of the world’s most popular wines and spirits brands, including Gordon’s Gin, Smirnoff Vodka, Hennessy, Moët & Chandon, Captain Morgan and, of course, that breakfast of champions, Johnnie Walker.

In terms of quality and desirability of products, its a very close run thing, and I really would not try to choose between the two.

So it comes down to fundamentals, and I’m still torn — I’m very strongly swayed by SABMiller’s share price having beaten the FTSE 100 for 12 years in a row from the year 2000.

The dividend tips it

But on balance, I just about prefer Diageo’s lower P/E valuations and superior dividend yields, albeit with slightly lower cover.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Older couple walking in park
Investing Articles

Could £300 a month invested in US and UK shares reach a million by retirement?

Could an investor retire with a million pounds just by dedicating £300 a month to US and UK shares? Mark…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

Is £800 enough to start an ISA?

Is it worth bothering with an ISA with less than £1,000 to spare? This writer believes it may be --…

Read more »

Investing Articles

3 reasons Tesla stock may be a long-term bargain

This writer is keen to buy Tesla stock at the right price. He doesn't think it's there yet -- but…

Read more »

Investing Articles

Nvidia stock is a lot cheaper than before – or is it?

Nvidia stock has been caught in the whirlwind of market volatility. This writer has been waiting to buy, so might…

Read more »

Top Stocks

3 FTSE stocks Fools are eyeing up for choppy markets

A selection of companies listed on the UK stock market on the watchlists of four Foolish investors.

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

A £10,000 investment in Rolls-Royce shares last week is now worth this…

Harvey Jones says Rolls-Royce shares couldn't escape the volatility of recent weeks, but wonders if the recent dip is a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Prediction: in 2 years these S&P 500 stocks will be much higher than they are today

These two S&P 500 stocks have been beaten down in recent weeks. But Edward Sheldon expects them to move much…

Read more »

Investing Articles

10% yields! Why a volatile stock market is great news for passive income investors

The recent stock market volatility has given passive income investors the chance to earn double-digit returns. But they still need…

Read more »