AB InBev (ABI) Stock Analysis: Belgian Brewer Gone Global

Stock Analysis for Belgium-based brewer Anheuser-Busch InBev

Belgium is probably best-known for its delicious nomorewaffles, chocolate, fries and beer – all food and drinks, I guess that tells a lot about us. Because I am a patriotic bastard I’d like to focus attention towards our rich beer heritage. Indeed, it should come as no surprise that the world’s largest brewer comes from humble Belgian beginnings. What’s more, brewer InBev sports a solid dividend history that many international dividend growth investors overlook.

Anheuser-Busch InBev (EBR:ABI or NYSE:BUD), or AB InBev for short, is a Belgium-based multinational beverage and brewing company. With a 25% global market share, AB InBev currently is the world’s largest brewer with 17 of its brands generating over 1 billion Dollars in revenue each. The brewer boasts an impressive dividend history with at least 15 years of consecutive dividend growth.

Anheuser-Busch LogoAfter the 2007 acquisition of American brewer Anheuser-Busch by the Belgian-Brazilian InBev, the newly formed business quickly consolidated its worldleading position. InBev’s market capitalisation is a whopping 181 billion Euros, ahead of its two closest competitors SABMiller (LON:SAB) and Heineken (AMS:HEIA), which boast a market cap of 80 billion Euros and 42 million Euros respectively.

Over 155,000 employees located in 25 different countries contributed to sales worth up to 47 billion Dollars in financial year 2014 . During the same time frame, InBev managed an EBITDA of 18.5 billion Dollars, up 6.6% from one year earlier.

InBev’s roots date all the way back to the Den Hoorn brewery established in 1366, which many beer lovers will instantly recognise as the date printed on the premium lager Stella Artois. As such, InBev believes that its heritage and age-old quality are at the core of its business. By staying true to exceptional quality, InBev hopes to be the best beer company bringing people together for a better world.

In the recently released 2014 annual report, the Belgian brewer attributes much of its success to its long-term mindset. InBev wants to “create a company that can stand the test of time and create value [for] shareholders, not only for the next 10 or 20 years but for the next 100 years.” During the past decade Inbev has indeed managed to do so through organic growth and through market-changing acquisitions.

Anheuser-Busch InBev's largest brands

As is the case with many consumer goods companies, AB InBev strongly relies on its brand portfolio. The company enjoys strong global presence through the Budweiser, Corona and Stella Artois brands, while international brands Beck’s, Leffe and Hoegaarden round out the portfolio. On top of that, InBev also tries to build local champions like Bud Light and Jupiler.

The global presence of Anheuser-Busch InBev becomes clear when looking at its top markets. InBev’s performance is particularly strong in the USA (46.4% total beer market share), Canada (42.1%), Mexico (57.8%), Brazil (68.2%), Argentina (78.1%), Belgium (55.7%) and South Korea (60.4%). The top four markets account for about half the beer sold around the world.

Investors looking for stable dividend income will be happy to hear that InBev tries to use its established moat to reach a low-volatility dividend yield that is in line with other large cap consumer goods companies. Currently, the company pays a dividend of €3.00 for financial year 2014, which gives new investors a gross yield of 2.65% at InBev’s current price of €113.10.

Dividend history of AB InBev for the past ten years

Even though the initial yield isn’t especially high, it’s the enormous growth rate of the distributions that should win long-term dividend investors over. Indeed, InBev managed to increase its dividend by 30% on average over the past five years, which shows that it truly is committed to creating shareholder value.

While the dividend payout had a bumpy ride during the acquisition of Anheuser-Busch in 2007, InBev still sports a 10-year DGR of 20%. That’s particularly impressive when considering the aforementioned acquisition and the fact that the brewer’s pay-out-ratio remains a healthy 64.8% for financial year 2014. Even though it’s likely that InBev won’t be able to continue growing its distributions at the same rate, organic earnings growth should still deliver a solid growth rate over the long-term.

Since InBev’s dividend growth history dates back at least 15 years – the exact time frame is hard to determine past the introduction of the Euro in 1999 – investors can indeed reasonably rely on continued growth. The non-cyclical and defensive nature of the brewer’s business furthermore makes an investment in Anheuser-Busch InBev a relatively low-risk addition to any dividend investor’s portfolio.

Indeed, most of InBev’s risks are limited to increased government scrutiny, antitrust and competition enforcement, and a failure to address changing consumer preferences and tastes. However, over time the brewer has shown to quickly adapt to changing market situations and the introduction of new health care policies geared towards alcoholic beverages.

Investors willing to take on these risks and looking for a high-quality consumer goods company can add Anheuser-Busch InBev AB to their portfolio by either buying the shares from Euronext Brussels (EBR:ABI) or the New York Stock Exchange (NYSE:BUD). Under Belgian tax law the dividends are subject to a 25% withholding tax, but for many international investors a reduced rate of 15% applies.

How do you feel about adding AB InBev to your portfolio? Do you consider it a good long-term defensive investment?

25 Comments

  1. Hey NMW,

    Great write up! I would definitely consider a stock like Anheuser Busch for my portfolio. I have literally just been looking at the London listed drinks manufacturers, namely:

    Barr (A G) BAG; Britvic BVIC; C&C Group CCR; Coburg Group CGG; Diageo DGE; Nichols NICL; and SABMiller SAB.

    As you know, I am currently looking only to London-listed stocks, due to the tax situations in owning foreign stocks.

    Cheers (quite literally this time)!

    P.S. My fave beverage is a good old wit bier

    1. As would I. I have been watching AB InBev for a while but I have still to work out whether it is economical or not to invest in the likes of AB InBev or “home” brewers like SABMiller. It is a hard one to work out.

      In the meantime I will have to console myself as a consumer rather than an investor with a cool Corona. Lovely.

      I added Britvic to my portfolio today after overcoming my minor doubts about its debt load (read http://bit.ly/1Ej99aB if you’re interested).

      However, I am a little embarrassed to notice that I did not even look at C&C Group! I had not heard of that one before. It has a nice mix of soft and alcoholic drinks. Will have to look into it more!

      Also, do you mean Coburg Group? I can’t find a drinks company of that name.

      Anyway, thanks NMW for the thorough AB InBev write up. When I have finally worked out how best to invest directly in Europe it will be top of my watchlist!

      1. DD,

        That’s a luxurious position to be in when there’s so much choice that you don’t know which stock to pick! I believe that you’ll do great whether you go with AB InBev or with SABMiller. Both great businesses, although I prefer InBev’s moat and management a little more.

        Glad to hear you enjoy InBev’s Corona! Next time I receive a dividend payment I’ll think of you. 🙂

        Keep us posted on your quest to invest in European stocks!

        Best wishes,
        NMW

    2. M,

      Great minds think alike, right? Can’t be a coincidence that we’re both looking at drinks manufacturers at the same time.

      Thank you for mentioning all those British companies – I had only ever heard of Britvic, Diageo (also own that one), and SABMiller. Let me know when you decide to pick one of them up!

      Ha, that doesn’t surprise me. Witbier is very popular as it’s easy to drink and has a soft aftertaste. I hope you drink InBev’s Hoegaarden. 😉

      Cheers, buddy!
      NMW

    1. Tyler,

      Glad to hear you’re a fan of ABI/BUD. I admit that current prices are a little high, but it doesn’t matter too much over the long-run if you pay a little premium or not. Besides, almost anything is expensive at the moment.

      Cheers,
      NMW

  2. Nice write up, got me thirsty for a good Belgium beer (Belgium in my opinion is hands down the best country for beers)! Which are harder to find on this side of the pond (brewing my own at the moment).

    I’m not confident that the beer market has much growth potential. However, most beer and spirits companies seem to be good at diversifying and increasing their markets with various beverages, which may still make this a very interesting buy for the longer term.

    Curious to see how this will develop and add to your dividend portfolio, if/when you decided to buy!

    1. Mr. FSF,

      Obviously Belgium is the best beer country in the world, no doubt about that! 😉 I always find it funny to hear how much hectoliters of beer we export every year. I believe it’s more than the water consumption of the entire Belgian population for a year.

      Beer and alcoholic beverages from their very nature aren’t strongly growth oriented, but there are some opportunities to be found. Manye Western companies haven’t properly accessed the Asian markets, so if they manage to find a way that should provide huge potential.

      Besides, the stable and non-cyclical nature of the alcohol business makes it attractive to me to. I’d rather have a stable 5% growth every year than a 10% increase in earnings followed by a 20% loss the next year.

      I already added InBev to my portfolio before the ex-dividend date. This post found its way online a little late because I was abroad.

      Cheers,
      NMW

  3. Alcohol is a lucrative market. In good times, they drink. In bad time, they also drink. Nothing happen in their life, they drink. Especially, the church endorse wine. They find reasons to say red wine contain antioxidants, and a lot more benefits, etc. They find reason to find “art” and “class” in alcohol. Therefore, it will always be very lucrative. They are very good buys!

    1. Vivianne,

      Haha, that’s a pretty funny write-up of why alcohol and drinks are a stable business model: people will continue to drink and will always find reasons to do so, no doubt about that.

      Best wishes,
      NMW

  4. Nice pick, a bit expensive (but lower P/E than Heineken for example). Would have considered it if I didn’t just missed the ex-dividend by 1 day… I have Diageo in my PF under the “drinks” area, but will add them to my watchlist…

    1. Lorenzo,

      Because I was abroad I couldn’t finish this post before the ex-dividend date, sorry about that. However, InBev pays semi-annually, so you should definitely keep an eye out for a price decline.

      Diageo is also a very good pick and a company I’m proud to won myself. Between DGE and ABI I think I’ve got the alcoholic beverages market covered.

      Cheers,
      NMW

  5. I may buy them one day but they’re not a typical dividend growth company. Chances are high they’ll make another major acquisition in the near-future and make a big cut to the dividend for several years.

    I still think it’s a shame Duvel Moorgat is no longer publicly trading 🙂

    1. Thomas,

      It’s true that InBev isn’t a pure dividend player, but management is very clear about the fact that they wish to return as much value to shareholders as possible.

      As you can see, the dividend did decrease between 2007 and 2008, but the extremely high payout in 2007 made up for that loss. Two years later the dividend payments were already over their previous highest level. That’s good and shareholder oriented management right there in my book.

      You’re absolutely right about Duvel Moortgat though. Would love to own a small piece of that too!

      Cheers,
      NMW

  6. NMW,

    Their P/E is high, but in the long run people will always have a beer. Still I think DEO is the better play in the alcoholic beverage market, and beer vs wine vs liquor should all be considered on industry, because they all compliment each other in a way at bars.

    I still see some people buying Budweiser or Bud Light in the states, but more and more they are losing ground the the small local breweries in the USA. In fact to keep pace they’ve simply had to buy breweries in the USA. BUD’s marketing in the USA has been slow to adapt, as have their breweries. Their market share is getting pummeled by people looking for local flavor of late, but still their P/E is so damn high! If it came down to something reasonable it might be a good long term purchase, as this company will rebound and always find its piece of the pie. Yet at this moment, they are not hitting their stride.

    I like the write up, just I’ve not bought their product in a while. Give me a Belgian Dubbel or a US Pale Ale or IPA any day. Or Kölsch in summer.

    – Gremlin

    1. Gremlin,

      Diageo is a solid play too, you’re absolutely right about that. I’m glad that I’ve added the British distiller to my portfolio last year before the Euro took a severe beating against the Pound.

      Local beers are becoming more popular over here too (more so than usual I should add). Belgium is very rich in breweries and they keep popping up all over the place. Let’s hope ABI/BUD finds a way to capitalise on that shift in consumer taste, which I’m sure they will.

      Cheers,
      NMW

  7. Hi Nmw,

    It is a great stock. I did pick up u few last october around 85 EUR. I did look at the other brewers but I went for Inbev since the current management has a great track record. I just wonder what the next take over will be. I heard rumours about taking over Cola, Pepsico, SabMiller…

    Have a good weekend.

    Cheers,
    G

    1. Geblin,

      Glad to hear you agree! As always I value your input on Belgian stocks especially.

      It seems like you picked up InBev at a great price point, right before the price hike. Just like you I also trust current management. They’ve shown time and time again that they expand the business in favour of shareholders.

      A takeover of KO or PEP seems rather unlikely, no? I can see why ABI would be interested in SAB, but I think they’ll start running into antitrust problems because their market share is so high already.

      Have a great (extra long) weekend!

      Cheers,
      NMW

  8. A takeover of KO or PEP would seem unlikely if you look only at ABI. But 3G ( one of ABI’s major shareholders) is currently building some stakes in food companies( Heinz, Kraft) and for most of their recent aquisitions they work together with Berkshire( which is also hunting for big preys).

    Cheers,
    G

    1. Geblin,

      Interesting thesis! Teaming up with Berkshire could make a merger/acquisition possible, but I guess we’ll see how things play out. Adding soft drinks and beverages to their portfolio could seriously enhance InBev’s position worldwide.

      Best wishes,
      NMW

    1. Simon,

      BinckBank and KBC Bolero are the only two platforms I have any experience with. I’m a big fan of Bolero’s platform, but the service is a bit more expensive than BinckBank’s.

      If you’d like to check out BinckBank shoot me an e-mail through the contact form and I’ll send you a referral link. This way we’ll both receive €100 in free transactions.

      Cheers,
      NMW

      1. NWM,

        I’ll check out these two platforms and send you an email if I am interested!

        What do you mean by ”expensive service”? What do these fees include? Are they mandatory?

        Thanks for your insight

        1. Simon,

          What I meant by expensive service is the fact that their transaction costs are a bit higher than other brokers.

          Cheers,
          NMW

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