If I had to ask you to list the 10 most popular beers in the world, your list would most probably include Budweiser, Stella Artois, Beck’s and Corona to name a few. What you probably would not know is that all these brands fall under the same Group of Companies which goes by the name of Anheuser Busch Inbev SA (ABI).
ABI is a multinational beverage and brewing company headquartered in Leuven, Belgium. It is the world's largest brewer, has a 25 percent global market share and offers consumers over 200 different brands of beer. In 2014, 80% of its sales came from the sale of beer, so it fair to say that this company is all about beer.
However, this company is not known just for the great taste of its beer. Shareholders are also attracted by the success story of ABI throughout the years and the returns it generated. The following are catalysts which should continue to drive positive momentum in the shares:
Growth through acquisitions
The Company has grown throughout the years mostly through acquisitions. With growth opportunities in emerging markets and a low interest rate environment, this strategy should continue bearing fruit in the coming years.
Potential Acquisition of Sab Miller
For a long time the market has speculated about the takeover of Sab Miller by ABI. There is a clear strategic rationale to the deal, neatly filling all the geographic holes ABI talks of wanting to fill. However, nothing has been announced so far.
Organic Growth
In 2014, 34% of sales were generated in the US and 33% in Latin America. Management are forecasting that organic growth will grow in line with inflation. With inflation expected to pick up in the US and Latin America, particular in Brazil, I expect organic growth to hover around the 5% level in the coming years. Management are seeing positive growth trends in the US, Mexico and Brazil. They also expect volume growth in China to pick up in 2015.
Favourable currency tailwinds
The weakness in the Euro should make the Group’s international brands more attractive and competitive as the same bottle of beer would cost must less now that the Euro has devaluated against most major currencies.
Cost consciousness
Investment behind its brands is fuelled by a disciplined approach to cost management and efficiency and, more specifically, the continuous reduction of non-consumer and non-customer facing expenses.
Operating Margins
Operating margins have been increasing steadily over a number of years and the company continues to benefit from synergies generated by the different companies within the group.
Share Buybacks
Management announced a €1bln share buyback program. This is another way of how the company will return cash to shareholders.
Dividends
In 2014, ABI generated €9.2bln in profit of which 65% were distributed as dividends to shareholders. The market expects this distribution ratio to increase in the years ahead.
Conclusion
ABI has gained over 20% year-to-date. I expect further upside from this level given the above arguments including a robust management team and a recovering global economy assisted by quantitative easing from the ECB. While I do not expect to see a repeat of the spectacular performance seen in the first two months of 2015, I am confident the shares will continue to achieve positive momentum over a long term investment horizon.
Mr Camenzuli is Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.