Billionaire vs Big Booze
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“Drink less, work more” exhorted Australian billionaire and world’s richest woman Gina Rinehart to her fellow Aussies in her recent column in Australian Investment and Resources Magazine. It's likely this won't go down so well Down Under, considering she inherited a $75 million grubstake from her mining tycoon daddy and has leveraged that up to $30 billion from the rise in prices for her homeland’s natural resources. The latter day Marie Antoinette finally advised if they want to be rich like her to socialize and smoke less, too. I’ll bet you a dozen bloomin’ onions drinking isn’t going to diminish in Australia on her say-so.
Her unspoken “let them drink Coke” aside, I have no fears that Big Booze will weather the tempest in a teapot. The most popular beer in Australia is Victoria Bitter, owned by Foster’s Lager which in September 2011 agreed to be acquired by SABMiller (NASDAQOTH: SBMRY.PK) the world’s second largest brewing company next to monolith Anheuser-Busch (NYSE: BUD).
Which Is the Best Big Booze
The liquor and beer stocks have been really performing well the last twelve months and are all flirting with 52 week highs. Anheuser-Busch, long considered the name America drinks, is actually a Belgian company founded in 1366. It has approximately 200 beer brands under its belt, soft drinks too. It recently agreed to buy out its remaining stake in Grupo Modelo and put it under its brand umbrella getting Corona and synergies of $600 million annually. The deal is expected to close in early 2013.
Anheuser-Busch has a higher P/E at 19.16 than tinier American competitor Molson Coors (NYSE: TAP) at 14.62 and a lower yield at 1.60% compared to the 2.90% at Molson Coors. Molson Coors has a profit margin of 15.50 but has underperformed the S&P this last year while Anheuser-Busch has outperformed up 53.30%. HSBC just upgraded Molson Coors on August 29. One thing these two do have in common is large debt loads to total cash; almost ten times the free cash. Anheuser-Busch has total debt of $39.84 Billion to $3.79 billion cash while Molson Coors has debt of $4.90 billion to $516 million cash. Something to consider before buying, the shares that is, not the beer.
More than likely this debt load is due to the shopping spree that Big Booze companies have been on this year; Heineken buying Asia Pacific Breweries, Anheuser-Busch buying Grupo Modelo, SAB Miller buying Foster’s Lager and its portfolio of brands and lastly, my favorite booze stock Diageo (NYSE: DEO) is in talks on buying Jose Cuervo for $3 billion. Diageo's debt load is also large, $13.69 billion to $1.71 billion in total cash. These acquisitions are driving up those debt ratios but once this modern day liquid gold rush ebbs free cash flow should improve with the synergies and accretion to earnings from these big buys sooner rather than later.
Let’s speak more of Diageo, based in London, U.K. which has the highest yield at 3.10% and has the largest market cap of its liquor rivals Brown Foreman and Beam. Its P/E is 22.37. Diageo just reported on August 23 and reported 15 % growth in the driver of 40% of its sales, emerging markets. They continue to press forward in emerging markets by acquiring Mey Icki, a Turkish alcohol company and Brazil’s Ypioca. As part of a booze barbell it has beers and wines as well as high quality brands like Tanqueray gin, Johnnie Walker scotch and Bushnell’s Irish whiskey among other top shelf brands.
Despite being near a 52 week high Diageo is probably the best name here and it goes ex-dividend on September 5. The board is also considering a proposal to raise that dividend by 8%. While it’s pricey like its brands it is so worth it.
Anheuser-Busch is a good name as is Molson Coors but Diageo is a name that is moving the most internationally with the highest yield and more of that to come in all likelihood. So, Ms. Rinehart leave the hard working Aussies alone and stop dissing some of the best wealth making stocks around.
leglamp has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Diageo plc (ADR) and Molson Coors Brewing Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.
