|Shares Out. (in M):||2,019||P/E||0||0|
|Market Cap (in $M):||156,311||P/FCF||0||0|
|Net Debt (in $M):||0||EBIT||0||0|
|Borrow Cost:||General Collateral|
Misses street estimates
|Subject||A couple of things worth mentioning|
|Entry||02/04/2019 07:50 PM|
I don't have a position in BUD, but I own Heineken Holding, so I looked at it pretty carefully. I think that there may be a mistake in your thesis for several reasons:
a) BUD should have margins that are substantially higher than Heineken, given different markets in which it operates. For instance, if I recally correctly, as much as 8% of EBIT comes from Columbia and Peru, where BUD has 98% market share, 50%+ EBITDA margins, and is unlikely to have meaningful competition for at least a decade. Brazil is also a substantial contributor, and after Heineken bought out Kirin, prices started rising there. In general, a very large portion of BUD's profits comes from markets where it operates in a duopoly, much more so than Heineken.
b) I think that craft penetration is going to be a much smaller threat outside the US than it is in the US. It is the unique nature of the US beer market, with its three tier distribution system that helped craft gain distribution and share. This is absent in other markets, and distribution is a much bigger barrier to entry outside the US. Moreover, the quality of the beer sold in these markets already is much better than what was sold in the US before craft came on the scene.
c) Cannabis is interesting point. In Uruguay where it was introduced a few years ago, beer consumption per capita actually rose. So the jury is still out what legalization of marijuana will do to beer volumes. From the research that I have read, marijuana tends to trigger psychological disorders in people prone to them, and of course driving while stoned is going to be a major problem.
d) I seem to recall that a significant part of acquisition related synergies should come in 2020, and if I am not mistaken, the EPS estimate for 2020 is around $6 or P/E of around 13x, not terribly high.
e) SAB before the take-over had organic volume growth of around 1% per annum if I recall correctly, and unless I am mistaken, the combined entity I think has flat to slightly up organic volume growth. Also, keep in mind that as time goes on, emerging markets become a bigger weight, and their superior growth in volumes will push up that organic volume figure.
f) You are taking a significant trading risk. If the company carves out its emerging market beer businesses, the newco could conceivably achieve P/E in the high 20s/low 30s. Look at where consumer staples in the emerging markets trades - Unilever India or Indonesia trade at 30x+. At that point, you could be getting US and Europe for free and the stock could easily go up 10 or 20 points.
Again, I have no position, and prefer Heineken Holdings, but I would be very careful about shorting it here.