TAP - Molson Coors

[LowIQinvestor]

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.

I agree

Here is the cliff notes thesis for TAP:

 

trading at financial crisis level valuation ( EBITDA multiple )

family owned- alignment of interests

deleveraging & margins improving

MillerCoors 2nd largest brewer in US- still has scale & popular beers

asymetric upside

Could be bought out later this year

[kab60]

Yeah, that's basically it. They should be able to compensate for lost volumes through efficiencies and M&A, and perhaps people will be thirsty for beer again sometime. Not that it changes a thing, but I'd also expect them to start buying back shares in H2 2019/H1 2020.

 

But them being bought out - who'd be a buyer? And would the family of Molson and Coors ever let go of their control?

 

I believe there has been dialogue between Molson and Carlsberg in the past (way past), but both Carlsberg and Heineken are exposed to higher growing markets (like Asia), so I'm not sure their shareholders would approve as it would bring down their expected growth rates (which is silly if it created value, but that's often how these things work anyway).

[LC]

Obviously they are bullish. To be fair in general there is value in presenting information in an easy-to-digest manner. I agree most was regurgitated information. Some parts I found useful:

 

Volume to MktCap

The macro data

EV:#Employees

Ownership structure

Comps metrics

The threads/opportunity slides

[Spekulatius]

Carlsberg looks cheap. I love those business sector rankings.

[LowIQinvestor]

Ha, turns out BUD is losing share to TAP following the Super Bowl ads!

 

Citing Nielsen data, MillerCoors also noted that while Bud Light's market share has declined, Miller Lite has gained market share while Coors Light is holding its own in the premium lights category.

 

https://www.cnbc.com/2019/03/12/millercoors-takes-another-swipe-at-bud-light-for-its-super-bowl-ad.html

[LowIQinvestor]

More TAP info:

The Original Light Beer, which is on a 17-quarter run of share gains in the American light lager segment, continues to gather momentum heading into spring

 

https://www.millercoorsblog.com/news/with-sales-and-share-gains-miller-lite-outflanks-segment/

[kab60]

Molson sues Bud over commercial: https://t.co/SLJYnSE2oS

 

I never expected this to be a high growth investment, but being up against a competitor pulling crap like that it might actually turn into one. It's freakin' hilarius to read the Twitter threads where angry corn farmers rant against Bud and swear they'll switch to Miller/Coors and never return. If the lawsuit brings more publicity and bad press against Bud it's a win and I suppose that's all it's about (and thus they should be careful, because people might be able to see through that).

 

 

[Spekulatius]

Molson sues Bud over commercial: https://t.co/SLJYnSE2oS

 

I never expected this to be a high growth investment, but being up against a competitor pulling crap like that it might actually turn into one. It's freakin' hilarius to read the Twitter threads where angry corn farmers rant against Bud and swear they'll switch to Miller/Coors and never return. If the lawsuit brings more publicity and bad press against Bud it's a win and I suppose that's all it's about (and thus they should be careful, because people might be able to see through that).

 

Maybe Coors should consider brewing real beer. The liquid currently sold as such doesn’t meet my specification. Neither does buttbeer.

 

If I were craftbrewer, I would call both of them out on this in an ad.

[louisdog]

 

 

Maybe Coors should consider brewing real beer. The liquid currently sold as such doesn’t meet my specification. Neither does buttbeer.

 

If I were craftbrewer, I would call both of them out on this in an ad.

 

What liquid constitutes "real beer"?  Did the beers at Terrapin change all the sudden when MillerCoors purchased it?  If they stopped using corn syrup to aid fermentation the same way Russian River does in Pliny the Elder or Sierra Nevada in Pale Ale would that make it better?

 

I have no problem with people not liking any particular beer out there but to say that because a brewery is large and brews lighter beer styles that you dont enjoy does not make real beer is what I dont agreement.  This does nothing to help people enjoy what I (and I assume you) are more flavorful and enjoyable beers. Just as small and local doesnt always mean quality, big and national doesnt always mean it sucks. 

[LowIQinvestor]

9 X EBITDA today - comps at 14 x + ( BUD & STZ)

raising dividend in 2nd half of 2019

Beer pricing is firming up

 

Miller Lite taking share

[kab60]

9 X EBITDA today - comps at 14 x + ( BUD & STZ)

raising dividend in 2nd half of 2019

Beer pricing is firming up

 

Miller Lite taking share

All true and I have a position, but there's a reason for the relative valuation gap I'd say. Miller Lite taking share or not, volumes are under pressure, and what worries me a bit is how long they can take cost out and raise pricing to make up for the volume losses unless they can do some meaningful M&A and I'm not sure how likely that is. I think you get compensated okay with a 10 plus FCF yield in a durable category, but that's also a bit misleading since their NOLs won't last forever. What do you think about the volume losses?

[Spekulatius]

Looks like they are TAPed out. Is it just me - “Revitalization plan” sounds really bad. And why do they move the headquarters to Chicago? Does the CEO want to live there? They probably should hand out Tequila shots in a Wework fashion for their employees or whatever is the strongest stuff they produce themselves:

http://ir.molsoncoors.com/news/press-release-details/2019/Molson-Coors-Announces-Revitalization-Plan-and-Reports-2019-Third-Quarter-Results/default.aspx

[LC]

Yeah it's bad news. Looooong term you may do well here just due to the fact that it's a global beer brewer/distributor and eventually economies of scale will "will out". But I sold a few days ago at a slight loss (actually a slight gain given ~9 months of dividends). But essentially dead money.

 

I originally under-estimated the local brewers, more specifically I under-estimated the "sunk cost" that local brewers undertake to lease & improve commercial space, and learn skillsets. They are not incentivized to leave a crowded, poor ROIC business. The major distributors therefore are stuck with irrational competition. For consumers it's great as you have a large selection and that builds a different beer-drinking behavior (i.e., brand loyalty is not a thing anymore).

 

Just my 2 cents.

[kab60]

LC raises some good points that I underestimated as well. They're in a tough spot. But hey, they'll do some M&A: New digital innovations are on tap, as are bolt-on acquisitions where there is a strong business case. Glad they're not guiding towards value destructive bolt-ons, but I also cut my modest losses earlier when it seemed like volume losses were here to stay. I thought they could stem the decline by plugging craft brewers into their distribution network and taking price, but the first point hasn't exactly been the case, and it's not tobacco they're selling, so they can't just hike prices lod-mid DD each year. I like the simplification of the corporate structure (how couldn't you?), and I'm sure there's more fat to cut, but what I perceived as somewhat cyclical headwins might be more secular, and they need a credible path towards volume growth or at least stabilization. That's somewhat difficult to envision since they're so overweight NA and there a few targets to move the needle, but it probably does make sense for them to go more meaningfully after other categories than beer.

[Spekulatius]

I owned this a few years ago and at that point the volume losses were 1-2% annually, which together with pricing power made the declines manageable - now they are not.

 

As for consolidation, strong regional players like SAM or Sierra Nevada May be in a better shape to pick up craft beer competitors than TAP, and then there are the true powerhouses like Ambev, Heineken etc. TAP is caught in the middle and seems to have nowhere to go.

[absolutbrian]

Molson is building a brand new factory on the south shore of Montreal. They are moving downtown Mtl to Longueuil  where they have a state of the art factory and better access to infrastructure (highway...) Molson's downturn factory is iconic to the city but certainly not to the modern standard it needs to be (industry 4.0).

 

Beer is a tough market. The situation in Quebec, and from around North American from what I've seen, is that we are living in a craft-beer bubble. Everybody is brewing. I'm brewing IPA! The beer pie is more of less the same, growing at the GDP size. And you more and more players fighting for crumbs. Sure you have many different players, like pub brewers etc...There's definitely a bubble. Most brewers get in it for the lifestyle and passion for beer. I'm not sure how many of those are economically sound.

 

A regular grocery store around here carries over 400 types of craft beer. He said that 5 years ago he had to call micro-breweries to get it on the shelves. Now they won't stop calling him and he has to turn them down. There are just too many.

 

My parent's generation identified themselves with a brand. You were a Bud guy, a Molson guy, a Labatt Blue guy...today's generation and younger, myself included, are not attached to one brand. Think of wine, how fragmented that market is. People wait in line for a limited edition seasonal small batch barrel etc...

 

A lot of the more successful micro-breweries are owned by the big boys, TAP and BUD. Bluemoon, Creemore, Trou du Diable are Molson owned.

 

I'm an investor and not interested at the moment. But still following the company because of their rich history in the region.

[Castanza]

The entire market of big players trying to purchase small breweries is the equivalent of throwing s!&t at the wall and hoping some sticks. As the boomers age and the younger generations continue to gain market share I think these large companies will have some issues to address. Nobody says "Let's go out Friday night and get some Buds." They say "hey, lets head to one of the 15 local breweries in our small 100k population town. And don't let me forget to pick up a growler when we close out." How are big companies supposed to capitalize on this?

 

Look at ABV passing on BREW's Kona brand a few months ago. Everyone thought it was a slam dunk deal. Economically the deal made sense. But are you going to make an expensive bet on a single brand and continued growth of that brand in this market? Why would I drink Kona when I can get beer from 5 different local breweries (+ a place to hangout and eat good food)? Pricing has also come down for a lot of craft beer. Why pay $5.50 for a Michelob Ultra when I can pay 6.50 for a Troegs Perpetual IPA at all local chains an non-chains?

 

The premium aspect or "feel" of craft beer is lost when it reaches a certain scale. Just my opinion though.