Wednesday, September 20, 2017 9:51:22 PM
Within 60 days after BUD bought SABMiller there was a panic over a potential dividend cut. The PPS tanked from $132 to $99.
It has recovered to $120.
I bought it on the way back up at $106.
It was feared BUD was over leveraged and could not service the debt and all of the dividend at the same time.
Buying SABMiller made BUD the biggest brewer in the world.
Since then they bought two more craft brewers. If you can't beat them join them is the strategy. Craft beer is exploding in the USA.
They bought 10 of them over the past 5 years and appear to be done. The reasoning is speculated to be that they intend to further develop the brands they bought.
BUD is focused on deleveraging.
To satisfy EU monopoly concerns regarding approving the merger, BUD has divested several brewers and brands in several EU countries.
They've laid off thousands of management and marketing positions that were duplicated after the merger.
They expect to realize over $2 billion in annual synergies once fully implemented.
Inbev's largely same executive management team successfully digested and reduced debt levels after they bought Anheuser Busch in 2008. It took 3 years.
BUD acquired SABMiller one year ago this month.
They've made terrific progress on all fronts including divesting brands (per the EU and British approval agreements), shedding payroll, working to expand brands in emerging markets, and most importantly reducing debt.
The only 2 emerging market problem countries weighing on revenues are Brazil and Venezuela. Well DUH.
If BUD reduces the dividend, I will buy more after the PPS crash. Nothing will be wrong with the company. It will only be because they want to accelerate debt reduction. That's a good thing if they can't get it done while paying out a 3.65% dividend.
Otherwise I am just riding this bronco as they work out the kinks and accepting the dividend in cash.
When You Say Budweiser, You've Said It All
Sep. 18, 2017 1:18 PM ET
Summary
Recent acquisitions and organic growth have made Anheuser-Busch InBev the largest and most profitable global beer brewer.
SABMiller Acquisition has provided additional scale and diversification but at a cost.
Management is committed to de-leveraging and the company is positioned to continue to gain market share, grow revenue and expand margins.
Business Description
Anheuser-Busch InBev (NYSE:BUD), aka ABI, is by far the world's largest and most profitable brewer with over $52 billion in annual revenues earned from its more than 500 brands sold throughout 150 countries. The company has grown both organically and through recent acquisitions, including Anheuser Busch in 2008 and SABMiller in 2016. As the chart below illustrates, ABI's revenues are well diversified throughout the world with the highest level of concentration in Latin America and North America.
This diversification serves to reduce ABI's exposure to geopolitical events, regional economic downturns and shifting consumer trends that may impact its more local and regional competitors to a greater degree. In addition, with products ranging from super premium down to value based brands, the company has put itself in a position to provide its product anywhere along a wide spectrum of consumer price points.
ABI is also able to satisfy a variety of consumer tastes including imports, craft, lifestyle, premium and near beers. The Company has a strong track-record of identifying potential changes in consumer behavior and adjusting its product offerings to meet these emerging trends. For example, recognizing the growing popularity craft beers in the mature domestic market, which, according to the The Brewers Association, has grown from a niche play of less than 2.5% of total U.S. beer sales in 2000 to over 15% of that same market today, ABI employed a "if you can't fight em, then join em" strategy, and acquired a number craft brands over the last several years. Not content to just participate, ABI has leveraged its extensive marketing and distribution capabilities to introduce these brands into new markets and regions such as China and Africa.
With the acquisition of SABMiller almost a year ago, ABI has not only become the world's largest and most profitable brewer, but also controls a market share that would be the envy of any global brand. According to ABI, it has a 45% market share in the U.S., 42% in Canada, 57% in South Korea, and 66% in Brazil.
Growth by Acquisition is Not Without Pitfalls
Regardless of the obvious advantages SABMiller brings to the table, I would be remiss not to point out that the acquisition required that the entity take on considerable, although not unmanageable, debt. However, the SABMillier deal was not ABI's first rodeo as demonstrated through the Anheuser Busch acquisition. After substantially levering up to complete the purchase in 2008, ABI successfully reduced net leverage (total debt, less cash divided by earnings before interest, tax, depreciation and amortization) to pre-merger levels by 2011. With net leverage extended yet again following the SABMillier acquisition, ABI is confronted with addressing similar challenge.
That being said, management has pledged to de-lever the balance sheet once again, and given its experience after the SABMiller purchase, there is reason to be confident they can. The combined entity should be able to take advantage of cost synergies, asset sales and organic growth to generate the cash flow required to achieve management's stated financial goal of deleveraging the balance sheet to approximately 2.0x. Investors should be aware that management also indicated that, if needed, they would postpone any dividend raise in order to do so.
Even with Acquisition Related Debt, Financials Remain Solid
Even with leverage extended due to the merger, the company has a very health liquidity position. As of 2Q17, ABI reported approximately $10.0 billion in cash and short-term securities, $9.0 billion in committed long-term credit lines and approximately $11.7 billion in cash flow from operations over the trailing twelve months. Also, ABI paid out approximately $9.0 billion in dividends to shareholders over the respective period. As noted above management has committed to debt reduction strategy before any major increases in dividends should be expected. Investors should be reminded that dividends could also be reduced if deleveraging initiatives fall short of ABI's stated goals.
While the re-inflated leverage from the acquisition of SABMiller was perhaps a necessary evil in getting the deal done, additional and cumulative competitive advantages that the merger has provided is undeniable. The acquisition of SABMiller provides opportunities in the growing markets of Asia, Latin America, and Africa, while at the same time reducing somewhat the concentration of business in the more mature and slower growing markets of the North America and Europe. By way of example, with almost no market share in the region prior to the merger, Africa now accounts for almost 9% to total ABI revenues post-merger. Conversely in the mature North America market, where the aforementioned craft beer segment was the only segment of the market that was growing, sales now represent only 29% of total revenue where prior to SABMiller they were almost 40%.
Solid operating results have come from the combination of the prior acquisitions (BUD, SABMiller, craft breweries) and good old fashioned organic growth. Total revenues have grown at a compound annual growth rate (CAGR) of approximately 15% since 2001, while EBITDA margin has improved by approximately 17% over the comparable period. Furthermore, we believe ABI should be able grow margins to more than 40% of revenues as it leverages its global brands through SABMiller's prior distribution channels and continues to further realize an estimated $2.4 billion in total potential cost synergies associated with the acquisition over the next three years which should produce an additional 5-6% in margin over the course of the same time frame.
Management Has a Strategy for Leveraging SABMiller and Growing Organically
Furthermore, management should be able to squeeze additional margin and organic revenue growth from strategic initiatives they have targeted over the next several years. These initiatives are summarized below:
Growing global brands - ABI has identified Budweiser, Corona and Stella Artois as the global brands that it intends to leverage throughout its distribution platform of over 150 countries. Budweiser is the world's top selling beer brand and is marketed, believe it or not, as a premium brand in over 85 countries and is gaining market share in China, Brazil and the U.K. Corona is the leading import in 38 countries and Stella Artois has increased volume revenues 6.6% y/y in Argentina, South Korea, Canada and Australia. Combined revenues from these three global brands are upgrew approximately 9% y/y in 2Q17.
Emphasizing the quality and exclusivity of its premium brands - ABI believes there is an opportunity to move consumers into more premium brands as markets and consumer preferences mature in emerging markets. If correct, the company is well positioned to benefit.
Emphasizing lager and craft style beers - Tailored marketing efforts are intended to attract the millennial generation as their taste preferences continue to mature.
Developing the alternative beer market- As the trend towards healthier lifestyles in developing markets grow, ABI expects to grow its low and no-alcohol beer from currently 7% of annual volumes to 20% by 2025. Toward this end, ABI recently launched several non-alcohol brands including Budweiser Prohibition in Canada and Corona Cero in Mexico.
Investment Recommendation
ChartBUD data by YCharts
As a result of ABI's leading market position in developed and emerging markets - most notably in Brazil, huge brand portfolio, unparalleled economies of scale, continued realization of additional revenue and cost synergies over the next the next three to four years, as well as the company's proven track-record of paying down debt following acquisitions, this ABI is positioned to continue to gain market share, grow revenue and expand margins. At $120/share, the stock is trading at multiples higher than it has historically but is not necessarily expensive relative to a fair market value estimate of $126 based on a Forward P/E of 25x and an adjusted enterprise value/EBITA of 15.5x.
ChartBUD PE Ratio (Forward 1y) data by YCharts
Plus with a 3.2% dividend yield, patient investors get paid to wait and they may need that patience in the short term as the company digests costs associated with the SABMiller acquisition. Long term upside is solid however, as investors should consider BUD as a core holding with solid long term growth potential.
I think that lyrics from the vintage 1970's beer commercial sum's thing up nicely.
There is no other one
There's only something less
Because the King of Beers
Is leading all the rest
When you say "Budweiser"
You've said it all
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