Grab a Beer and Relax
Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The adult beverage trade has seen a good year in 2012. Stocks of companies such as SABMiller (NASDAQOTH: SBMRY), Pernod Ricard (NASDAQOTH: PDRDY) and Anheuser-Busch InBev (NYSE: BUD) have done well. If you look at the stock price, it seems like everyone is having a drink. So let us take a look at these three companies and which one of them will be a good investment.
Arguments for SABMiller
SABMiller is the second largest brewer in the world with about 14% global market share, second only to Anheuser-Busch InBev’s 18%. SABMiller however, is geared to the developing countries of the world, putting it in quite a strong position. The company gets nearly a third of its earnings from Latin America. The company also has strong positions in Africa and Asia. China, especially, has seen joint venture with China Resource Enterprise which makes and markets ‘Snow,’ the best-selling beer brand in the world. The company has been seeking to expand its market share, even if it means through acquisitions as we saw in the Fosters deal. However, while the company is strong in Colombia and Peru, it isn’t particularly strong in Brazil and Mexico – two key markets in South America. This is largely due to the fact that BUD and Heineken moved aggressively to build market share there.
What about the others you mentioned?
Anheuser-Busch InBev is the world’s largest brewing company. The giant produces more than 200 beer brands including prominent ones such as Budweiser, Stella Artois and Becks. The company’s shares have gone up ever since it came into the market in 2009. It was priced at $36 a share in 2009 and catapulted to about $88 in 2012. This is quite a phenomenal increase in share price in the given period. It also returns money to investors with a dividend of $1.31 per share. Analyst Richard Gallagher expects earnings of $4.85 a share on sales of $40 billion for the current year, a healthy 33% increase over last year. He sees the stock rising as high as $110 by 2015. As mentioned earlier, BUD moved very quickly into areas like Mexico. In Mexico, BUD extended its global reach by swallowing Groupo Modelo for $20.1 billion. Modelo’s brands include Corona, which is the best selling imported brand in the US.
Pernod Ricard too is doing fairly well with analysts these days. AlphaValue reissued their “add” rating on shares of the France based company. Analysts at Sanford C. Bernstein reiterated a market perform rating on shares of Pernod Ricard SA in a research note to investors on Nov. 20. They now have a $121.79 price target on the stock. Analysts at RBC Capital upgraded shares of Pernod Ricard SA to an outperform rating in a research note to investors in the beginning of November. The company has a large chunk of debt which will prevent it from taking over brands and thereby accumulating market share. The last fairly large acquisition made by the company was Absolut, the vodka brand. Thanks to this problem, the company isn’t expected to significantly improve on its performance in the near future.
Let us come back to SABMiller, however, which seems to me like a company that is set to grow. The company has a fairly good relationship at the moment with Molson Coors in the US and a purchase would give them a good presence in Canada and Brazil. In addition, over the past decade, the company has improved its distribution network significantly. With the mushrooming of micro-breweries, beer and adult beverage producers will need to focus on improving their distribution if they want to remain on top.
The company also has a soft-drinks division which could well be undervalued. It is the largest bottler of Coca Cola in the world. The company’s Turkish partner Anadolu Efes could be a future target as well thanks to existing relationships; the companies already operate a joint venture in beer (which has the #2 share in Russia) and Anadolu is not only a major presence in beer in Europe, the Mideast, and former Russian states, but also in Coca-Cola.
In addition to all this is the fact that SABMiller is a fairly well recognized name and is the 2nd largest brewery in the world. The stock has a current price of about $45.
ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!