BUD - Anheuser-Busch InBev

[kab60]

Think it is very interesting here. They have some structural tailwinds in EM and a superior return and margin profile compared to peers. Currency obviously a risk. They are also more isolated than many businesses from covid19 and a recession. Their major acquisition was obviously a mistake, but their market position and debt load means one shouldn't worry about that going forward. If one looks at the returns on tangible assets it's a pretty fabolous business, but goodwill and intangibles tells a story of past mistakes. Asahi sale closing would be good, but either way I am not too worried about the debt. They don't have any financial covenants I believe. I actually like something like this and Altria as a cornerstones in a portfolio going into a potential recession since the risk both face is very company specific.

[SharperDingaan]

Decide if the objective is share price appreciation via selling beer, or asset disposition.

Beer is very much a seasonal business. If the intent is price appreciation via selling beer, there are many better choices.

 

SD

 

[rb]

Altria owns a bunch of this.

[kab60]

Altria owns a bunch of this.

Yep, but not very meaningful as a % of EV. After the slashed divy, and if Asahi closes, they should delever quickly. So debt paydown should acrue to equity owners, while debt load keeps management in check. What always kept me away was EM currency exposure, but on the other hand this is a decent way to get a toehold into EM without betting the farm.

[BG2008]

I own some but haven't added. It's a bit unbelievable to think that I lost 50% on a "safe" business. So I'm thinking that maybe my compass isn't working that well with this one.

 

What is obvious is that the SAB Miller acquisition was an unmitigated disaster and destroyed a lot of value. Remember the guys were supposed to be the best at operations and at doing deals. Turns out that maybe that's not true and now they're also levered up to their eyeballs. Seems they couldn't help themselves from doing deals. You can also see it with QSR where they paid a massive price for Popeyes even though QSR was massively levered up.

 

The only positive with BUD is that they're so large that they can't make another deal. But I have this fear in the back of my mind that they'll decide to "transform" into a "beverage company" and buy Diageo or some soft drink company or something.

 

Bottom line, I've pretty much lost confidence in the management.

 

I wonder if the problems of 3G is not really related to their ability to manage and acquire but rather a problem of cultural fit.  Culturally, every company/firm has a style.  Even in value investing, there are different styles like deep value (net nets), distressed/bankruptcy, GARP, cyclicals, Growth, etc.  There was a time where you can buy up beer and other consumer stable companies and slash a lot of cost.  Craft brewing marketing through social media for next to nothing is not really a thing and consumers were too dumb to realize they were drinking crappy beer. So you can count on volume and pricing increases.  So the playbook was simple, it was buy a good CPG company, levered it up, and slash cost.  Anyone who invest in real estate or private equity understands that if you simply have 2-3% rent increases a year and you put 50-70% LTV on that property, the end results will likely be teens to 20s compounding.  So this is the playbook.  This is like Royce Gracie (he's Brazilian, so a good comparison) winning Ultimate Fighting Championship 1.  All the Gracie knew were Brazilian Ju Jitsu.  Now there is a proliferation of craft brands and BUD and 3G really don't have the DNA or style or whatever you want to call it to operate in a world where you need a savvy social media person.  Just look at Wendy's twitter account and how they give out "burns".  Fundamentally, the virtuous cycle of higher sales => more TV ad budgets => higher sales is broken.  Their strength is still their distribution channels and their route density.  No one can get a 24 pack to market cheaper than these guys.  Unlike Berry Global which makes plastics (more commoditized/less branding), Bud is caught in a world where brands do differentiate.  This is where a die hard guy with long beards or a surf dude can really convey shared core value with their customer base.  In short, the beer business is starting to look a little more like the wine business where there are lots of selections and lots of little guys. 

 

Brewing beer is kind of like tying to run a small value hedge fund.  The guys who do them are die hards.  So it is everyone's dream to make a living brewing their own beer and selling it for a living.  I think BUD and many other CPG needs to spend on R&D and innovation and have internal startups that test out funky flavors, brews, etc.  Frankly, move faster.  Obviously, these things are easier said than done.  In short, Bud is still the heavy footed Clydesdale like in their commercials and the craft brewers are like little a pack of hyenas taking bites at them. 

 

 

[rb]

In fairness to BUD a bunch of years ago they did buy out Mill St in Canada which was like the big gorilla of craft brewing.

 

On the marketing front it's a lot easier to have niche campaigns for niche brands (surfer dude beer, bearded dude beer, etc) than it is to to have them for the gigantic brands that BUD has: Stella, Becks, Bud, Corona, etc. In order to move those kinds of volumes you need to have a message that appeals to a broad audience.

 

On the beer side of things (the assets) things don't actually look too bad. The returns on the assets are really good. They also do have some pricing power and depending on the region volume growth. So the assets are good. The liabilities side is the problem. Simply overpaid for the assets.

 

As someone who owned this for a few years it obviously hurts and it's obvious I overpaid. But at this price level there is an argument that it makes sense. So you can have a rebase of the stock price and go from here. But then the question is. Are they gonna do it again?

[Spekulatius]

BUD looks quite cheap and the debt manageable, but (six) they generate a bit more than 40% of their revenues in South and middle America. I can easily see the EBITDA getting a haircut by 20% just from currency movement alone (the Mexican Peso is down more than 20% against the USD), so that’s one Problem . Even besides the currency issue, I don’t expect the emerging markets to do well.

 

Typically a company operating these countries in scale would issue debt in local currencies too to hedge. But that would cost higher interest rates obviously. I haven’t been able to see, if BUD did that or hedged the current exposure by other means.

[decko]

There is a good chance the economy will be down to relatively flat over the next 1-2 years(if not, then it doesnt hurt this company), thus isnt BUD a great company to own?  I think so..  There are many sectors that will hurt by this ChinaVirus/covid for a few years, just look at auto industry.  American plants cannot work because they are waiting on closed plants to open on mexico, etc. I.e. globalization.  Yes, i do understand beer isnt free from the same issues, with grain being delivered, etc. 

I dont want to go down the list of every sector that will be hurt, or sectors that will do okay. I believe Beer consumption will be in the okay category once Inbevs operations start up again in their international countries.    Obviously, the price of the stock is cheap. So, is this a great company that offers a product we use in good times or bad times? Is it a great brand? Does the current situation prevent you from buying their products?  Do you believe there will be many services and products not purchased because of covid, however you believe INbev isnt one of them? 

    I believe this is a perfect example of a great investment will very little risk and a lot of upside.  Truly sorry for those who were in at higher prices. I took a stake at 42 and sold 22' puts.  The debt does worry me, but the confidence of revenue tempers that fear.  The Bud light Seltzer is already taking off.. (horrible name for the product, but it'll still do well).  AB is also bringing out a competitor to mikes hard lemonade. 

I have a friend who owns a large distribution of Bud in a few states. He's overall sentiment is very positive for the company, specifically with new products coming out this year and the value of the stock. 

[DooDiligence]

My unsophisticated preference is for ABEV, mostly because of the light debt load.

 

I owned it before & booked a little gain & it's bumping 52 week lows now.

 

My thesis is simple, people like beer, Brasilians really like beer & I have 1st hand knowledge of this  ;)

[SharperDingaan]

You might want to look at BREW (Nasdaq) instead.

https://www.craftbrew.com/

 

SD

[Spekulatius]

My unsophisticated preference is for ABEV, mostly because of the light debt load.

 

I owned it before & booked a little gain & it's bumping 52 week lows now.

 

My thesis is simple, people like beer, Brasilians really like beer & I have 1st hand knowledge of this  ;)

 

Looking at both BUD and ABEV, I agree with you that ABEV looks more attractive.

[Foreign Tuffett]

Bloomberg -- "Budweiser’s Asia Unit Posts Loss"

 

[SharperDingaan]

That 400M bottle dump is going to hurt. As well as no 'legal' alcohol sales for a while in one of SAB's biggest markets.

The only thing the distilleries and breweries are going to be making, for some time, is hand sanitizer at 60% by alcohol volume.

https://news.yahoo.com/south-african-brewer-says-may-151146761.html

 

SD

 

[Jurgis]

That 400M bottle dump is going to hurt. As well as no 'legal' alcohol sales for a while in one of SAB's biggest markets.

The only thing the distilleries and breweries are going to be making, for some time, is hand sanitizer at 60% by alcohol volume.

https://news.yahoo.com/south-african-brewer-says-may-151146761.html

 

SD

 

F******CKKK!

 

Please send those 400M bottles our way instead of destroying them.

 

Bloody capitalist pigs. Dumping perfectly good beer for shareholder profits. In Russia this would cause a revolution!

[rb]

Bloody capitalist pigs. Dumping perfectly good beer for shareholder profits. In Russia this would cause a revolution!

Let's keep some perspective here. This is beer, not vodka we're talking about.

 

But sounds like things really suck in SA right now.

[Jurgis]

Bloody capitalist pigs. Dumping perfectly good beer for shareholder profits. In Russia this would cause a revolution!

Let's keep some perspective here. This is beer, not vodka we're talking about.

 

OK, a revolution will be contained to Poland and Czech republic... whew.

[SharperDingaan]

Bloody capitalist pigs. Dumping perfectly good beer for shareholder profits. In Russia this would cause a revolution!

Let's keep some perspective here. This is beer, not vodka we're talking about.

 

But sounds like things really suck in SA right now.

 

Roughly 16% ZAR-CAD FX devaluation in the last 2 months. 30-50% devaluation expected before they start on recovery.

BUD's P&L is in for a bumpy ride over the next 2-3 quarters.

 

SD

 

 

[Spekulatius]

That 400M bottle dump is going to hurt. As well as no 'legal' alcohol sales for a while in one of SAB's biggest markets.

The only thing the distilleries and breweries are going to be making, for some time, is hand sanitizer at 60% by alcohol volume.

https://news.yahoo.com/south-african-brewer-says-may-151146761.html

 

SD

 

Big mistake going after booze and cigarettes during the pandemic. Pick your battles carefully. Booze stores are essential business in the US and I actually think that a smart choice.

[rb]

That 400M bottle dump is going to hurt. As well as no 'legal' alcohol sales for a while in one of SAB's biggest markets.

The only thing the distilleries and breweries are going to be making, for some time, is hand sanitizer at 60% by alcohol volume.

https://news.yahoo.com/south-african-brewer-says-may-151146761.html

 

SD

 

Big mistake going after booze and cigarettes during the pandemic. Pick your battles carefully. Booze stores are essential business in the US and I actually think that a smart choice.

Of course it is a big mistake. The last thing you want during a pandemic is for 30-40% of your population to go through with withdrawal at the same time. Especially in a high crime place like SA. I guess these SA guys aren't all that bright.

 

On the flip side I think there's probably a lot of moonshine is SA at this moment. Fire up them stills!

 

As an aside, where I am right now a litter of hand sanitizer costs about as much as a bottle of Glenlivet. So someone is making money.

[Jurgis]

That 400M bottle dump is going to hurt. As well as no 'legal' alcohol sales for a while in one of SAB's biggest markets.

The only thing the distilleries and breweries are going to be making, for some time, is hand sanitizer at 60% by alcohol volume.

https://news.yahoo.com/south-african-brewer-says-may-151146761.html

 

SD

 

Big mistake going after booze and cigarettes during the pandemic. Pick your battles carefully. Booze stores are essential business in the US and I actually think that a smart choice.

Of course it is a big mistake. The last thing you want during a pandemic is for 30-40% of your population to go through with withdrawal at the same time. Especially in a high crime place like SA. I guess these SA guys aren't all that bright.

 

On the flip side I think there's probably a lot of moonshine is SA at this moment. Fire up them stills!

 

As an aside, where I am right now a litter of hand sanitizer costs about as much as a bottle of Glenlivet. So someone is making money.

 

I wonder if SD will go back to SA and restart his moonshine business.

 

IIRC he's already making hand sanitizer from his other beer business.

[Junto]

Getting more serious on adding BUD now that businesses are opening.

[SharperDingaan]

That 400M bottle dump is going to hurt. As well as no 'legal' alcohol sales for a while in one of SAB's biggest markets.

The only thing the distilleries and breweries are going to be making, for some time, is hand sanitizer at 60% by alcohol volume.

https://news.yahoo.com/south-african-brewer-says-may-151146761.html

 

SD

 

Big mistake going after booze and cigarettes during the pandemic. Pick your battles carefully. Booze stores are essential business in the US and I actually think that a smart choice.

Of course it is a big mistake. The last thing you want during a pandemic is for 30-40% of your population to go through with withdrawal at the same time. Especially in a high crime place like SA. I guess these SA guys aren't all that bright.

 

On the flip side I think there's probably a lot of moonshine is SA at this moment. Fire up them stills!

 

As an aside, where I am right now a litter of hand sanitizer costs about as much as a bottle of Glenlivet. So someone is making money.

 

I wonder if SD will go back to SA and restart his moonshine business.

 

IIRC he's already making hand sanitizer from his other beer business.

 

Sadly, there's not a lot of point when most of your profit is being lost to FX devaluation!

SAB will not complain too much either, as it's a complementary product. Mama Tembo's 'moonshine' is typically unfiltered sorghum beer, brewed in a 44-gallon oil drum, and served via a stir/dip of a calabash. For the more 'high-class' - packaged in milk cartons to put in your fridge, shake and pour. Takes around 4-5 days to make, and 2-3% ABV.

 

Preferable for authorities as Mama Tembo's beer is 'country beer' traditionally drunk in the bush at an all-night beer drink. with lots of drumming, dancing, and no amps (no electricity, and not necessary). Whereas SAB product is typically drunk at a uban 'shebeen' (booze parlour) where the purpose is often to just get drunk. Much lower population density at a beer drink, much more physical activity, much harder for the virus to spread, and when you've had too much - one just goes to sleep behind a bush.

Not much of a sacrifice!

 

SD

 

 

 

 

   

 

 

[DooDiligence]

That 400M bottle dump is going to hurt. As well as no 'legal' alcohol sales for a while in one of SAB's biggest markets.

The only thing the distilleries and breweries are going to be making, for some time, is hand sanitizer at 60% by alcohol volume.

https://news.yahoo.com/south-african-brewer-says-may-151146761.html

 

SD

 

Big mistake going after booze and cigarettes during the pandemic. Pick your battles carefully. Booze stores are essential business in the US and I actually think that a smart choice.

Of course it is a big mistake. The last thing you want during a pandemic is for 30-40% of your population to go through with withdrawal at the same time. Especially in a high crime place like SA. I guess these SA guys aren't all that bright.

 

On the flip side I think there's probably a lot of moonshine is SA at this moment. Fire up them stills!

 

As an aside, where I am right now a litter of hand sanitizer costs about as much as a bottle of Glenlivet. So someone is making money.

 

I wonder if SD will go back to SA and restart his moonshine business.

 

IIRC he's already making hand sanitizer from his other beer business.

 

Sadly, there's not a lot of point when most of your profit is being lost to FX devaluation!

SAB will not complain too much either, as it's a complementary product. Mama Tembo's 'moonshine' is typically unfiltered millet beer, brewed in a 44-gallon oil drum, and served via a stir/dip of a calabash. For the more 'high-class' - packaged in milk cartons to put in your fridge, shake and pour. Takes around 4-5 days to make, and 2-3% ABV.

 

Preferable for authorities as Mama Tembo's beer is 'country beer' traditionally drunk in the bush at an all-night beer drink. with lots of drumming, dancing, and no amps (no electricity, and not necessary). Whereas SAB product is typically drunk at a uban 'shebeen' (booze parlour) where the purpose is often to just get drunk. Much lower population density at a beer drink, much more physical activity, much harder for the virus to spread, and when you've had too much - one just goes to sleep behind a bush.

Not much of a sacrifice!

 

SD

 

 

Sign me up for the bush beer bongo bash.

 

I'll bring a cajon & a cuica & if wind instruments are allowed, a didgeridoo (it doubles as a bong).

[SharperDingaan]

Number 7 (Boag) and Number 10 (Carlton Draught) are pretty good ...

 

https://video.search.yahoo.com/yhs/search;_ylt=AwrDQpej7.xeV2oAIyoPxQt.;_ylu=X3oDMTByMjB0aG5zBGNvbG8DYmYxBHBvcwMxBHZ0aWQDBHNlYwNzYw--?p=zulu+beer+drink+drummers&fr=yhs-symantec-ext_onb&hspart=symantec&hsimp=yhs-ext_onb&guce_referrer=aHR0cHM6Ly9zZWFyY2gueWFob28uY29tL3locy9zZWFyY2g_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&guce_referrer_sig=AQAAAIR9oeSm3xJ-bxsCZAKaYZx1aKtoDHRI2TlW223JaUfd1nv8bvzslqXBj-LBZL4w7t6zkXoqV3jKlnDjlDZ02gyHB1OdSxwzplWaD_UC5B84uVJr1dn88Bby-5v6XDnUSkHOp-4a1qfq6jQWcj1LRjHJwlAVTaln0Ph4oiWqaeBl&_guc_consent_skip=1592586184#id=57&vid=1ee39fffa97864a31e7bd91e0ca638de&action=view

 

SD

 

[Broeb22]

I've been sniffing around BUD (but more so TAP) of late. It's hard to understand how the largest brewer in the world trades at 10-11x EBITDA and Molson Coors trades at ~8x EBITDA and the rest of the consumer staples universe trades at multiples between 10-15x.

 

Sure, people can't go out to eat (and thus drink) as much, but even with the leverage on these companies, they still generate a ton of cash and will generate a ton of cash even in a bad recession.

 

It's an easy double from here if they can maintain at least flattish EBITDA and get valued like some other high-quality staples companies (which are facing their own secular issues in many cases).