TAP - Molson Coors

[valueinvestor]

Hi Everyone, I've been away for quite sometime due to school and work, and stumble upon this when I dipped my foot in the water again.

 

Current P/E 8x

 

I'm not sure why it is so cheap, as it has dominant market share in many markets (although concentrated mature markets), it's in an industry that's basically recession-proof (no source for that statement).

 

Possible Reason:

 

When ABV acquired SabMiller, the antitrust regulatory body asked to divest the joint venture that SabMiller and Molson Coors had. They took a lot of leverage and seemed to have paid a high EV/EBITDA multiple, yet it was lower than what brands like these typically trade at.

 

Possibly NAFTA? I have saw an article that says that Molson Coors is likely to be affected by NAFTA, but I am sort of confused since they nearly obtain all their ingredients from the U.S (again no source)

 

Still scratching my head on this one.

[Zorrofan]

If I recall correctly TAP had a one-time gain from the revaluation of their minority holding in Miller when they bought the rest of the company from SabMiller. This is what is distorting the results and giving such a low PE.  Actual PE is closer to 20.  Plus, while stable, growth is slow and beer consumption has been declining with craft beer being the one bright spot.

 

cheers

Zorro

[kab60]

Couple of points;

 

As said above current P/E is meaningless. You wanna look at it on an adjusted EV/Ebitda basis or simply FCF yield. But you need to toy around a bit.

 

I think it's probably pretty cheap since they're gunning for meaningful margin expansion in the years to come, and they should do good in a recession since they have a lot of low priced brands that are somewhat struggling atm where people more willingly pay up.

 

Debt is high, but that's okay IMO in a biz like this, and then you have value accruing to equity when debt gets paid down. It also means the risk of bad capital allocation is reduced, even though I think these guys are pretty solid. No position but I've been following. Looks interesting but I can't say I'm an expert on the Industry even though I love the products...

[longlake95]

Haven't pulled the trigger, but seems cheapish. It's not 8X, it's more like 18X or 5.5% FCF yield. Seems you could get to a $100/share valuation without much in the way of lofty expectations. The Miller fold-in helps North America growth and if recent cider acquisition is any indication, they are growing in the right areas. would be nice to see another craft beer acq.

Management seems to be focused on lowering costs - can they execute? Still not cheap enough for me, I'll continue to watch and maybe will we get our fat pitch.

 

 

[alpha]

Anyone still following this company?

 

Seems to be trading below book since recent earnings release.

 

Management blamed overall weakness in global beer demand for their poor quarterly results.

 

 

[Spekulatius]

It’s cheap if they stabilize their volumes. They lost between 3-5% of their volumes YoY and some margin as well from rising costs.

 

I think the issue with the beer market is that the segmentation does increase, which leads to less volumes and earnings with their most profitable brands. I think they will have a hard time to increase their margins forward, as they planned to do. At 10x EV/EBITDA it’s too not expensive, but not very cheap either.

[MrB]

MV now at $12Bn. Management still confident they can hit their $1.5Bn in "underlying Free Cash Flow" in 2018, putting it on 8x. Cheap!

[kab60]

Pulled the trigger a bit early  (low 60s) but they just released strong results and guiding for another 100m in cost reductions. 1500m FCF on 12,5b marketcap in a company selling a product people have been drinking for ages. Dividend will get a large bump mid 19 when leverage gets to 3,75x. Don't expect anything explosive here but really don't see much downside long term, and perhaps craft fades a bit if the economy turns south.

[MrB]

Pulled the trigger a bit early  (low 60s) but they just released strong results and guiding for another 100m in cost reductions. 1500m FCF on 12,5b marketcap in a company selling a product people have been drinking for ages. Dividend will get a large bump mid 19 when leverage gets to 3,75x. Don't expect anything explosive here but really don't see much downside long term, and perhaps craft fades a bit if the economy turns south.

They also had a $1Bn share buy back in place before buying the rest of MillerCoors. Maybe that comes back once they have the IG rating back.

[kab60]

Pulled the trigger a bit early  (low 60s) but they just released strong results and guiding for another 100m in cost reductions. 1500m FCF on 12,5b marketcap in a company selling a product people have been drinking for ages. Dividend will get a large bump mid 19 when leverage gets to 3,75x. Don't expect anything explosive here but really don't see much downside long term, and perhaps craft fades a bit if the economy turns south.

They also had a $1Bn share buy back in place before buying the rest of MillerCoors. Maybe that comes back once they have the IG rating back.

I'd think so. There might also be opportunities to buy out craft brewers if we get a recession and/or money isn't free.

[JayGatsby]

Thanks for the update. I'd been watching it but forgot.. does seem favorable. Low risk company.

 

Seems like craft beer has played out a bit. There's a brewery (or more) in every neighborhood here (Denver). Coors products are still a staple. Even friends that are really into craft alcohol buy Coors Light as a regular drink.

 

I worry a bit about this: "the first step is to improve our share performance through Coors Light and accelerated premiumization of the portfolio.". From what I can tell Colorado Native has been a total flop (I've seen a ton of promotion, but have never seen anyone actually buy it unless there were basically no other options). It seemed like an expensive flop by my standards, but relative to their overall size it may have been peanuts. The multiples people are paying for craft brewers seem ridiculous. I'm told that a lot of this is a about distribution, and after the acquisition sales go down in the local market (it's no longer a local company), but nationally sales go way up.

 

 

[DooDiligence]

I really like Sam Adams Cherry Wheat & haven't seen it on the shelves in forever.

[MrB]

Pulled the trigger a bit early  (low 60s) but they just released strong results and guiding for another 100m in cost reductions. 1500m FCF on 12,5b marketcap in a company selling a product people have been drinking for ages. Dividend will get a large bump mid 19 when leverage gets to 3,75x. Don't expect anything explosive here but really don't see much downside long term, and perhaps craft fades a bit if the economy turns south.

They also had a $1Bn share buy back in place before buying the rest of MillerCoors. Maybe that comes back once they have the IG rating back.

 

Consdiring the above and the following from yesterday's call it is unlikely we will see a buyback - it'll go to divi in 19

 

"Investing wisely is our third platform, and we remain resolute on our deleverage commitments, returning cash to

shareholders currently planned by our dividend increase in 2019 and strengthening our business through brandled

growth opportunities."

[MrB]

Thanks for the update. I'd been watching it but forgot.. does seem favorable. Low risk company.

 

Seems like craft beer has played out a bit. There's a brewery (or more) in every neighborhood here (Denver). Coors products are still a staple. Even friends that are really into craft alcohol buy Coors Light as a regular drink.

 

I worry a bit about this: "the first step is to improve our share performance through Coors Light and accelerated premiumization of the portfolio.". From what I can tell Colorado Native has been a total flop (I've seen a ton of promotion, but have never seen anyone actually buy it unless there were basically no other options). It seemed like an expensive flop by my standards, but relative to their overall size it may have been peanuts. The multiples people are paying for craft brewers seem ridiculous. I'm told that a lot of this is a about distribution, and after the acquisition sales go down in the local market (it's no longer a local company), but nationally sales go way up.

Colorado Native arguably on the margin; premiumization driven at the core by the likes of Sol, Perrone, etc. Also the perception a North American investor might get about what is "Above Premium" could be jaded by the fact that Miller Light and Coors Light are Above Premium outside the US for ML and US and Canada for CL. Above Premium 21% of their portfolio and growing.

[kab60]

Pulled the trigger a bit early  (low 60s) but they just released strong results and guiding for another 100m in cost reductions. 1500m FCF on 12,5b marketcap in a company selling a product people have been drinking for ages. Dividend will get a large bump mid 19 when leverage gets to 3,75x. Don't expect anything explosive here but really don't see much downside long term, and perhaps craft fades a bit if the economy turns south.

They also had a $1Bn share buy back in place before buying the rest of MillerCoors. Maybe that comes back once they have the IG rating back.

 

Consdiring the above and the following from yesterday's call it is unlikely we will see a buyback - it'll go to divi in 19

 

"Investing wisely is our third platform, and we remain resolute on our deleverage commitments, returning cash to

shareholders currently planned by our dividend increase in 2019 and strengthening our business through brandled

growth opportunities."

I think buybacks are a real possibility:

 

From CC: And I think the encouraging thing is, assuming that we hit those commitments which we intend to do, and as we get into the second half of next year and then into 2020, even with the planned dividend increase, we still then have further flexibility in terms of our cash-use approach. And that could be further deleveraged. It can be further returning cash to shareholders beyond the dividend. And it could be brand-led growth opportunities.

[MrB]

Pulled the trigger a bit early  (low 60s) but they just released strong results and guiding for another 100m in cost reductions. 1500m FCF on 12,5b marketcap in a company selling a product people have been drinking for ages. Dividend will get a large bump mid 19 when leverage gets to 3,75x. Don't expect anything explosive here but really don't see much downside long term, and perhaps craft fades a bit if the economy turns south.

They also had a $1Bn share buy back in place before buying the rest of MillerCoors. Maybe that comes back once they have the IG rating back.

 

Consdiring the above and the following from yesterday's call it is unlikely we will see a buyback - it'll go to divi in 19

 

"Investing wisely is our third platform, and we remain resolute on our deleverage commitments, returning cash to

shareholders currently planned by our dividend increase in 2019 and strengthening our business through brandled

growth opportunities."

I think buybacks are a real possibility:

 

From CC: And I think the encouraging thing is, assuming that we hit those commitments which we intend to do, and as we get into the second half of next year and then into 2020, even with the planned dividend increase, we still then have further flexibility in terms of our cash-use approach. And that could be further deleveraged. It can be further returning cash to shareholders beyond the dividend. And it could be brand-led growth opportunities.

Fair deduction; agreed.

[LowIQinvestor]

Wow TAP trades at 8.5 x EBITDA now with potential margin expansion. I'm interested

 

BUD at 12 x EBITDA

STZ at 13 x EBITDA

[DooDiligence]

They own Zima & Old Style and a bunch of what looks like east European brews.

 

Looks cheap & I wouldn't mind a little exposure besides AmBev & what Altria owns of BUD.

 

People like beer.

[louisdog]

They own Zima & Old Style and a bunch of what looks like east European brews.

 

Looks cheap & I wouldn't mind a little exposure besides AmBev & what Altria owns of BUD.

 

People like beer.

 

Just an FYI, they dont own Old Style.  MillerCoors brews Old Style for Pabst, who owns the brand.  Agree that people do like beer

[kab60]

They own Zima & Old Style and a bunch of what looks like east European brews.

 

Looks cheap & I wouldn't mind a little exposure besides AmBev & what Altria owns of BUD.

 

People like beer.

 

Just an FYI, they dont own Old Style.  MillerCoors brews Old Style for Pabst, who owns the brand.  Agree that people do like beer

They brew for Pabst but the parties are in a dispute (MolsonCoors wants to end the relation - possibly to lower their cost base - Pabst wants to extend).

[louisdog]

 

They brew for Pabst but the parties are in a dispute (MolsonCoors wants to end the relation - possibly to lower their cost base - Pabst wants to extend).

 

They are no longer in dispute and the lawsuits were settled a few weeks ago.  MolsonCoors will continue to brew Pabst and Pabst has an option to buy one of MolsonCoors breweries, most likely the Irwindale one.

[kab60]

 

They brew for Pabst but the parties are in a dispute (MolsonCoors wants to end the relation - possibly to lower their cost base - Pabst wants to extend).

 

They are no longer in dispute and the lawsuits were settled a few weeks ago.  MolsonCoors will continue to brew Pabst and Pabst has an option to buy one of MolsonCoors breweries, most likely the Irwindale one.

Thanks, I missed that. Haven't seen a lot of colour on the settlement. Where'd you read about that option? Thanks

[louisdog]

 

Thanks, I missed that. Haven't seen a lot of colour on the settlement. Where'd you read about that option? Thanks

 

I work in the beer industry by day so it was in an industry newsletter.  Here is the relevant info:

 

MC and Pabst Settlement Extends Deal Until 2024; Option to Buy Brewery, Pabst Told Bankers

 

Pabst had call with bankers earlier this week, where upbeat chairman Eugene Kashper talked up extension of contract brewing arrangement until 2024, with fee increases one source characterized as moderate, but didn’t specify.  Pabst also said they will have option to buy brewery (presumably Irwindale), tho Pabst at same time pursuing 2 other breweries potentially for sale, so it has different ways it could go.  Purchase price under option would be reasonable Pabst told bankers. Capped at $150 mil, said another source.  Pabst leverage reportedly still high, at around 6x debt to EBITDA.

 

Pabst having an option could be a benefit for MolsonCoors as they wont just be stuck with an non operating asset like the Eden brewery. 

[LowIQinvestor]

Anyone know Elevation Capital?

 

They own TAP shares and think it has upside of 50 -100%.

 

Bull case at 14 X EV/EBITDA ( BUYOUT)

 

Presentation below:

 

http://www.elevationcapital.co.nz/molson-coors

[kab60]

Thanks for the link. I don't know those Guys, but they do make nice looking power points. That said, there wasn't a single piece of interesting information for anyone who has watched a Company presentation. Nothing wrong with their thesis (I don't hope - it's basically the one I have) but it could be summed up in less than half a page.