Q220 results and 15 questions for management
Summary of Q220 results Q220 results were materially ahead of consensus expectations at both the top- and bottom-line. To be more specific, Q2 LFL sales at -17.7% were c.530bp better than consensus expectations with South America being the principal driver of the beat (-7.2% vs. consensus at -24.5%). Turning towards the bottom-line, EBITDA at USD3.4bn was c.12% ahead of consensus with LFL EBITDA declining by -34.1% (consensus -36.4%). While mindful that ABInBev is not a stock where investors pay much attention to EPS, underlying basic EPS at USD0.40 was +76% vs. consensus. News Volumes declined by -32.4% in April, -21.4% in May and June experienced +0.7% growth. Earnings We revise our FY20e/FY21e/FY22e EPS by +6%, +9% and +10% respectively. Conscious that the market tends to pay rather more attention to operational profits at ABInBev, we note that our FY20e EBIT is left broadly unchanged and we increase our FY21e and FY22e EBIT by +4% and +5% respectively (we increase our margin assumptions). Investment thesis ABInBev has three attributes that we are eager to avoid in the current environment: a material exposure to out-of-home sales (we estimate that the on-trade accounts for c.36% of sales), high financial leverage and a material exposure to Latin America (the area where we have greatest macro concern). Rating / target price We maintain our Underperform rating. Our target price moves from EUR41 to EUR42. 15 questions for management Can you please shed colour on the stock replenishments influencing the +0.7% June volume?
30 Jul 20
SECTOR UPDATE | Beverages | Back to basics
In this research we examine the brewer’s return on invested capital. In the first place, ROIC is an indication of how well past management has allocated capital to profitable investments. AB InBev’s decline in ROIC to 6.4% in 2019, demonstrates the destruction of value that has occurred owing to the 2016 SABMiller acquisition. Also Carlsberg’s previous management destroyed value with its Scottish & Newcastle and Baltika acquisitions leading to a ROIC hovering around 6% in the period until 2016, when new management came in and improved the ratio to 9.4%. Royal Unibrew’s 18.9% ROIC reveals the zeal of its management to create value for its shareholders. Heineken’s ROIC of 8.1%, in line with WACC, is only middle of the road.
ABI TAP HEIO HEIA RBREW
15 Jul 20
ABInBev: we modestly revise our FY20e / FY21e EPS We revise our FY20e EPS by c.(1)% and our FY21e EPS by c.(1)%. The revisions primarily related to updated FX translation and some modest operational tweaks. Our EUR41 target price remains unchanged. Heineken: we make more meaningful EPS revisions to our FY20e / FY21e EPS We revise our FY20e EPS by c.(8)%. The variance relates to updated FX translation, taking a more conservative view on price / mix realisation and incorporation of a higher tax rate estimate (to reflect our estimate of the impact of lower profits limiting interest deductibility in the Netherlands). Given that with the exception of FX translation these impacts should hopefully be temporary in nature, we revise our FY21e EPS by only c.(2)%. Our EUR75 target price remains unchanged. Please see within for our updated estimates Please see within the report for our updated segmental sales, segmental EBIT and profit and loss account estimates.
AB INBEV Heineken NV
06 Jul 20
Staples Sanitiser: summer edition
Is Q2/H1 relevant? Arguably not Given the exceptional context, one can validly question whether Q2/H1 trends have any relevance to equity valuations. Notwithstanding this, we thought it a timely juncture to revisit estimates across our Consumer Staples coverage universe. Where we stand relative to near-term consensus Relative to near-term consensus expectations (Visible Alpha: Q2/H1), we find ourselves materially below consensus on key metrics for most names. The notable positive exceptions to this being the brewers and Reckitt. Taking a longer-term perspective: we see scope for relative multiple expansion Assuming that we will remain in a low rate environment for the foreseeable future, staples look reasonably good value to our eye. Core EU Staples (Food, HPC and Bevs) currently trade at a 27% premium relative to market, albeit against an inflated market P/E. Looking forward to CY21e, we are at a 38% premium and on CY22e, we are at a 49% premium. Danone: We downgrade to Neutral While we believe that Danone is relatively cheap, we increasingly struggle to see what will trigger the market to positively re-appraise. Organic growth in FY20e will likely be lacklustre (0.0%), structural questions will likely only deepen (Waters, Dairy, Chinese IMF), there will be no near-term CMD, Nestle''s US Water disposal is unlikely to be a positive valuation marker and to our mind a portfolio review is all well and good but there is not an obvious SOTP argument. While Danone may be relatively cheap, we suspect it will stay that way. We downgrade to Neutral. TP to EUR66. We revise target prices across the sector We revise target prices across the space to reflect both a re-appraisal of our EU Food, HPC and Brewer''s benchmark multiples plus the 6 month roll-forward of our target earnings base. The most noteworthy revisions are at ABInBev (+14%), Danone (-8%), L''Oreal (+12%) and Reckitt (+13%).
ABI HEN3 HEIA BN NESN BEI OR RB/ ULVR CARLB PG KMB CL MOWI COTY BYND
30 Jun 20
AB INBEV: Key points from our virtual meeting | BUY | EUR60(+56%)
AB INBEV - BUY | EUR60(+56%) Key points from our virtual meeting Encouraging trend in China – life returning to normal New CFO is likely to continue previous hedging policies Digitalisation trend in favour for the larger brewers Australia sale to be executed on 1 June
25 May 20
Clearer picture of what's going to happen next
Q1 figures broadly in line with expectations. Like its peers, Q2 is expected to be worse when taking into account that lockdowns are in many markets. The signs of recovery in China are, however, encouraging. No major changes expected in our estimates. While we don’t expect a quick return to normal, we certainly see no real downside potential as long as debt markets are supported by central banks.
07 May 20
AB INBEV: First picture on Q2: global April volumes down 32% | BUY | EUR60(+56%)
AB INBEV - BUY | EUR60(+56%) First picture on Q2: global April volumes down 32% Q1 volumes -9.3%, revenue -5.8%, EBIT -19.7% Global April volumes down 32% Operating leverage in extreme situations – the China example Mitigating actions on costs and liquidity
07 May 20
Weak Q4, soft but realistic FY20 EBITDA guidance
A poor Q4, which strongly missed expectations on EBITDA (-5.5% vs. -1.9% expected). While FY20 guidance (2-5% EBITDA growth) appears soft, we believe that it is actually more reasonable following the H2 FY19 troubles which are likely to be exacerbated by the Coronavirus in the first half. Now trading at a discount to peers, we are just waiting for some visible improvements.
27 Feb 20
AB INBEV: Corona virus is more than halving Chinese revenues | BUY | EUR100(+61%)
AB INBEV - BUY | EUR100(+61%) Corona virus is more than halving Chinese revenues Another quarterly result, another disappointment Corona virus impact and outlook China and USA disappoints but other key markets florish
27 Feb 20
AB INBEV: AB InBev launches Everie cannabis tea and soft drinks | BUY | EUR100(+39%)
AB INBEV - BUY | EUR100(+39%) AB InBev launches Everie cannabis tea and soft drinks Launch of cannabis 2.0 AB InBev JV with Tilray launched Everie – CBD infused tea CAD0.9bn Canadian cannabis infused beverages market
20 Dec 19
Weak Q3 and reduced FY19 guidance
Weak Q3 numbers and downgraded guidance for FY EBITDA growth. At both the top- and bottom-line, the group disappointed. The slowdown in the main markets, higher cost of sales and yoy phasing of sales and marketing investments all negatively weighed on the results.
25 Oct 19
Brewers | Lasting forever
In this research we analyze in depth the past and future organic revenue growth rates of the brewers. Over the past five years, AB InBev’s 4.9% annual organic revenue growth and Heineken’s 4.5%, look spectacular. However, as both have nearly 40% of their revenues from high-inflation countries, their inflation-corrected organic revenue growth rate has been a disappointing at 0.5% and 0.7%, respectively; well below the 2.1% that Royal Unibrew managed but better than the -1.4% from Carlsberg and the -3% from Molson Coors
ABI RBREW TAP HEIO CARLB
10 Sep 19
The plan B money raiser
The market applauded ABI’s Australian divestment ($11.3bn), and rightly so. AB Inbev reacted quickly after it failed to IPO its Asian unit as a way to contract its immense debt ($106bn). It may well be that this shift (i.e. keeping Asia) means potential investments in emerging markets to offset the lacklustre US.
22 Jul 19
Strong year ending, sees better performance in FY18
Strong Q4 on the back of a rebound in Brazil as well as better performances in China and Colombia. The US remains soft, although improved vs. Q3. As positives, we note a better than expected margin progression. The improvment from quarter to quarter and positive FY18 outlook should be reassuring for shareholders.
01 Mar 18
Q2 better than expected
Q2 update: revenue grew +5% organically (cons. +3.8%), volumes were up 1% (cons. +0.1%) whereas revenue per hl stood at +3.2%. The EBITDA margin was up 238 bp on an organic basis and -110bp on reported figures. Organic revenue growth by region: North America 0% (cons. -0.9%), LatAm West +8.5% (cons. +6.4%), LatAm North -1.8% (cons. +0.7%), LatAm South 35.4% (cons. +27%), EMEA +10% (cons. +6.3%) and Asia Pacific +5.9% (cons. +5%). By the most important markets, the US saw a better quarter with revenues down only 0.2% but the company has been losing market share. In Brazil, revenue declined 3.8% in Q2, with beer volumes down 1.3% (an improvement vs Q1) against market volumes of -2.7%. The margin stood at 39.2% (better than in Q1). Mexico continues to perform ok with revenue up low double-digit. South Africa delivered very good +8.8% sales growth in Q2 with a strong margin progression. Colombia had a better quarter vs. Q1 with revenues up +3.4% and volumes down 1.4%. China had quite a good quarter with revenue up +7.2% with +1% growth in volumes and an EBITDA margin expansion to 35.7%. The group expects to accelerate revenue growth in FY17.
27 Jul 17
Q1 better than expected, provides some relief
Q1 update: revenue grew by +3.7% organically (cons. +2.8%), volumes were down -0.5% (cons. -0.6%), and revenue per hl stood at +4.3%. On the reported figures, revenue was up by 7%. The EBITDA margin was up by 76bps on an organic basis and flat on the reported figures. Organic revenue growth by region: NorAm -2.1% (cons. -0.1%), LatAm West +3% (cons. +4.5%), LatAm North +2% (cons. +0.4%), LatAm South +27.4% (cons. +16%), EMEA + 4.9% (cons. +4%) and Asia Pacific +8% (cons. +3.5%). By the most important markets, Brazil remains weak (although volumes were up by 3.4%, the EBITDA margin contracted to 38.8%). US volumes were disappointing (down 4.7%) impacted by BudLight, and the EBITDA margin slightly improved. Mexico seemed to be solid (revenue up high-single-digit) with margin expansion. China had a good start to the quarter with positive volumes (+5%) and better revenue per hl (+6%). South Africa seems to running well with stronger pricing and margin expansion on the back of the implementation of Global Brands. In Colombia, volumes were down by almost 8% and the margin contacted due to a VAT increase. The group expects to accelerate revenue growth in FY17 despite the volatile market environment.
04 May 17
Stock attractiveness falls flat
FY and Q4 update: In Q4, revenue grew +0.2% organically (cons. +3.1%), volumes were down 3.3% (cons. -0.8%), and revenue per hl stood at +3.9%. The EBITDA margin was down 152bp on an organic basis and -300bp on reported figures (FX headwinds) to 37%. By the most important markets, Brazil remained weak (EBITDA in Q4 was down c.33%), although pricing improved. US volumes were down in line with Q3, however, margins improved. Mexico seems to be solid. China had a weaker quarter on strong comparables but the overall performance seems to be good (market share gains with stronger pricing). Volumes in South Africa declined by 5% in Q4 and the EBITDA contracted. In Colombia, volumes were also down with a margin contraction. For the FY revenue grew +2.4% organically, and volumes were down 2%. Revenue per hl was up +4.5%. On reported figures, sales contracted by 3%. The EBITA margin contracted by 92bp organically on the back of a weak Brazil (EBITDA declined by c.20% in FY16) and was down 190bp on reported figures to 36.8%. The net profit for period is down 42% on the back of FX headwinds as well as higher net finance costs (linked to the acquisition of SABM). The proposed total dividend is €3.6 (in line with last year’s). FY17 outlook: the group expects top-line growth to accelerate. The company also updated its synergies guidance: ABI expects a total $2.8bn in synergies at constant FX from the SABM acquisition ($2.45bn previously),of which $800m was captured in 2016 and another $2.0bn will be delivered in the next 3-4 years.
02 Mar 17
Q3: ABI lowers guidance on the back of weak Brazil
ABI Q3 update: On an organic basis, revenue grew +2.8% (cons. +3.4%). Volumes were down 0.9% (cons. -1.5%). Revenue per hl stood at 3.8%. On the reported figures, revenue is down 2.3%. The EBITDA margin contracted by 240bp on a reported basis and by 178bp on organic basis (due to Brazil). Organic sales by region: North America -0.3% (cons. +0.7%), Mexico +12% (cons. +8.1%), LatAm North -5% (cons. +3.1%), LatAm South 22.2% (cons. 12.2%), Europe +3.1% (cons. +3%) and Asia 5% (cons. 4.9%). Volumes by region: North America -2.4% (cons. -0.8%), Mexico +9.6% (cons. +5%), LatAm North -4.5% (cons. -4%), LatAm South -1.7% (cons. -7%), Europe -3.2% (cons. +0.3%) and Asia 1.2% (cons. +0%). By most important market, the US performance in Q3 was weak (both STRs and STWs were down by respectively –2.6% and -2.5%, ABI continued also to lose some market share to STRs). Brazil was very weak (volumes down 5.1%, pricing was negative, and there was a huge EBITDA margin deterioration from 50.2% to 37.8%). Mexico seems robust. China delivered good results (volumes +1.6% and 417bp EBITDA margin progression). The group cut its FY guidance for pricing to now be in line with inflation (vs. ahead of inflation) due to a weak Brazil. ABI had expected Brazil to be flat in revenue for the FY, which is no longer the case. The company expects that unfavourable hedges linked to the devaluation of the Brazilian real will impact COGS before easing by mid-FY17.
28 Oct 16
Weak Q2 but who cares when China gives clearance & the SABM Board recommends the offer
Q2 update. On an organic basis, revenue grew +4% (cons +5.8%). Volumes were down -1.7% (cons +1%). Revenue per hl stood at 5.9%. On the reported figures, revenue is down -2.2%. The EBITDA margin contracted by 50 bps (due to LatAm). Organic sales by region: North America +2.2% (cons. +1%), Mexico +9.5% (cons. +11%), LatAm North +1.7% (cons. +9.2%), LatAm South 4.1% (cons. +15%), Europe +4.6% (cons. +4%) and Asia 4.1% (cons. +5%). Volumes by region: North America +0.4% (cons. -0.7%), Mexico +7.2% (cons. +8%), LatAm North -4.6% (cons. +1.3%), LatAm South -14.8% (cons. -5%), Europe -0.8% (cons. +1.2%) and Asia –1.7% (cons. +1.2%). Taking the most important markets, the US delivered good results which were an improvement on the Q1 (volumes were practically flat -0.3% with flat STRs and STWs down -0.9%, whereas the EBITDA margin was up +92bp). Mexico recorded another quarter of strong growth (volumes +9.9%, the margin was negatively impacted by the timing of sales and marketing investments). Brazil’s performance was weak and reflects the challenging macro environment (volumes -4.7%, organic EBITDA margin was down 217bp). China’s performance was good given the weak industrial environment (volumes -1.8% vs. market -8%, organic EBITDA margin was up +553bp on the back of premium portfolio). The company amended its FY guidance and now expects Brazilian net revenue to be flat for the FY (mid to high-single-digit previously).
29 Jul 16
Q1 disappoints on Brazilian weakness
ABI reported its Q1. Volumes were down 1.7% (cons. -0.3%). Organic revenue was up 3.1% (cons. 6.1%). Revenue per hl stood at 4.9%. On reported figures, revenues were down 10% whereas the normalised EBITDA margin contracted by 120bp. Organic volumes by region: Northe America -1.1% (cons. 0.1%), Mexico +13% (cons. +8%), LatAm North -7.3% (cons. -3.5%), LatAm South -5.3% (cons. -2%), Europe +1.8% (cons. +0.5%) and Asia -0.5% (cons. 0%). Taking the most important markets, the US delivered good results (volumes down 1.2% with STRs -0.3% and STWs down -1.2%, whereas the EBITDA margin was up +82bp). Mexico delivered another quarter of solid growth (volumes +13%, however the margin was negatively impacted by the timing of sales and marketing investments). Brazil’s performance reflects the challenging macro environment (volumes -8.5%, organic EBITDA margin was down 96bp). China’s performance was neutral (volumes -1.1% vs. market -4%, organic EBITDA margin up +76bp). The group expects the challenging environment to continue but initiatives which have been put in place should mitigate the impact. Consequently, ABI remains cautiously optimistic about the rest of the year and maintains its guidance.
04 May 16
Q4 leaves a taste of disappointment
ABI released its Q4 and FY results. In Q4, total volumes declined 0.7% (cons 0%) whereas revenue grew organically +7% (cons +6.5%). The normalised EBITDA grew +6.6% (cons 6.5%). Revenue per hl grew 7.7%. On reported figures, sales stood at $10.7bn (cons $11.1bn) and normalised EBITDA was at $4.3bn (cons $4.58bn). Q4 organic volumes by region: NorAm -2.9% (cons. -1%), Mexico +11.3% (cons. +5%), LatAm North -2.6% (cons. +1.1%), LatAm South -3.7% (cons. +0.9%), Europe + 2.9% (cons. -3%) and Asia Pacific -0.2 (cons -1%). Q4 organic revenue by region: NorAm -0.6% (cons. 0.2%), Mexico +13.9% (cons. +8%), LatAm North +7.1% (cons +9%), LatAm South -+24.1% (cons. +28.5%), Europe + 8.9% (cons. +3%) and Asia Pacific 11% (cons +4.8%). Taking the most important markets, in Q4, the *US* volumes were down 3.3% (STWs were down 3.3% STRs were down 1.1%) whereas the organic EBITDA margin contracted 246bp (poor quarter). *Mexico* recorded another strong quarter with volumes up +11.3% and a 352bp organic EBITDA margin improvement. In *Brazil*, volumes stood at -3.5% whereas the EBITDA margin was up 34bp (a good performance in a difficult economic context). *China* remained fragile with volumes practically flat (-0.2% vs. -6% for the whole industry, good performance overall). On a FY basis, total volumes were down 0.6%, organic revenue was up +6.3% (-7% on reported figures). The normalised EBITDA margin was up 55bp organically and down 80bp on a reported basis. Proposed interim dividend is €2.00 (€3.60 for the FY vs. €3.00 last year).
25 Feb 16
Solid Q3, China disappoints
ABI released its Q3 update. Revenue grew +7.9% organically (consensus +6.7%) whereas organic volumes were up +1.5% (cons. +0.9%). Revenue per hl grew 6.3%. On reported figures revenue was down by 7.1% due to an adverse FX effect. Total normalised EBITDA margin progressed by 58bp organically and was 10bp down on a reported basis.
30 Oct 15