Anheuser Busch InBev is a multinational beverage and brewing company headquartered in Leuven, Belgium. It is the world's largest brewer and has a 25 percent global market share.
It has 16 brands that individually generate more than US$ 1 billion annually in revenue, out of a portfolio of more than 200 brands. Its portfolio includes global brands Budweiser, Corona and Stella Artois, international brands Beck's, Hoegaarden and Leffe and local brands such as Bud Light, Skol, Brahma, Antarctica, Quilmes, Victoria, Modelo Especial, Michelob Ultra, Harbin, Sedrin, Klinskoye, Sibirskaya Korona, Chernigivske and Jupiler.
The Bad
ABI was one of the star performers in 2015 returning 21% to shareholders. However, 2016 is going to be much more challenging for the Company for three main reasons.
The first is due to the fact that the Company is finding it hard to increase its top line despite increasing its marketing spending. In 2015, ABI suffered a reduction in volumes across all countries apart from Mexico. With global growth concerns in 2016, we do not expect to see a pickup in sales.
The second is due to the increase in marketing, distribution and administrative costs which contributed to lower margins in 2015. We do not expect margins to start picking up anytime soon.
The third is the SABMiller acquisition which is still in the process of being concluded and the risk of something going wrong in the interim would be a drag on an already tight valuation.
Our concerns are as follows:
* Management are forecasting a drop in margins of between 0.3%-0.8%. The reason for this is mainly due to a higher cost of marketing (+9.5% in 2015), distribution expenses (+8.3% in 2015) and administrative expenses (+8.3% in 2015) which are likely to remain high in 2016.
* We have seen slow volume sales across the board apart from Mexico. With a slowdown in global economic growth, we do not expect to see a pick-up in 2016.
The Good
We like ABI because:
* The largest brewer in the world with renowned brands. We expect the SABMiller deal to help to company increase its market share and reduce costs through synergies created. The Group CEO is expecting a $1.4bln synergy from the SABMiller deal. However, we are not factoring this into our model since it is very subjective at this stage.
* Global growth concerns are having an impact on most Companies not just ABI. We are confident that when the global economy starts to pick up, ABI will be well positioned to benefit from this.
* Dividend policy remains unaffected by the SAB Miller acquisition. The dividend for 2015 was €3.60/share compared to €2.45/share in 2014. Management continue to target a 3-4% dividend yield on the shares.
This article was issued by Kristian Camenzuli, 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.