Why investors' taste shifts from Budweiser to Heineken

July 30, 2018 9:58 am

Investors do not have to worry: the problems are only superficial, as a result of changes in the mix of Heineken's operations. The troubled Brazilian brewer Heineken bought about $ 700 million in Kirin, Japan in 2017, which is growing faster than expected. His lower margin weighs more heavily on his new parents. The strong euro, which among other things reduces the relative weight of Heineken's lucrative Vietnamese business, is another drag on the company's margins right now.

Otherwise, the brewer seems in top shape with sales up 5.6% over the first half of last year, excluding currency and portfolio variations. Most consumer groups are struggling to generate this kind of organic growth these days under intense price pressure from besieged retailers

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AB InBev

who reported results Thursday, was 4.7%. The world's largest brewer is doing well in most countries, but not in the United States, which is by far its biggest market, thanks to Budweiser. Heineken is not immune to the decline of the American lager, but its operation is weak in comparison. The only indigenous brand of the group is the Lagunitas artisan brewery.

The great merit of AB InBev is its extraordinary profitability: its adjusted operating margin in the first half was 31%, almost double that of Heineken. This comes from its vast scale in large markets like the United States Heineken is more fragmented, but by the same token, more diverse.

The two shares change hands for about 20 times the profits. Investors preferred AB InBev, especially after announcing in 2015 a mega-generator rich in synergies with SABMiller. Savings from this deal are already more than half in the books and investors are realizing that sales growth is what matters in the long run. Even after Monday's disappointment, the thirst for growth could favor Heineken.

Writing to Stephen Wilmot at [email protected]