BofA Bearish On Anheuser Busch, Says Volume Growth 'Remains Patchy'

Anheuser Busch Inbev NV BUD has seen “flattish” volume since its 2016 purchase of former competitor SABMiller, despite boosting access to emerging and other global markets, according to Bank of America Merrill Lynch. 

Not much has changed in terms of volume growth for the makers of Budweiser since the $108-billion acquisition, analyst Fernando Ferreira said in a Tuesday note. 

The Analyst

Ferreira reiterated an Underperform rating on AB Inbev and raised the price target from 57 euros ($64.60) to 60 euros ($68.)

The Thesis

Organic top-line growth trends have remained about the same since the purchase, Ferreira said. Volume growth “remains patchy,” he said, despite an increased presence in emerging markets, particularly Africa.

“We see room for improvement on the top line, given stronger performances from markets such as Mexico, Colombia, China, Western Europe and certain African markets." 

AB Inbev CEO Carlos Brito said last week on the company’s earnings conference call that emerging markets are a centerpiece of the brewer’s business.

“We are well-positioned in emerging markets, which represent more than 70 percent of our volume and almost 60 percent of our revenues,” Brito said. “That is up for long-term growth despite short-term volatility.”

The brewer is working hard to accelerate volume growth and drive profit growth beyond expanding the margins, but Ferreira said BofA remains skeptical of how much AB can do.

One big reason: mainstream beer just isn’t what it used to be in terms of demand. That’s led to a need to invest in smaller brands and categories — see Anheuser Busch’s recent decision to buy a liquor company — but with the downside that it dilutes the benefits of scale inherent in big brands.

Other reasons for the skepticism include higher operating margins for AB versus competitors and a stretched balance sheet, which Ferreira said reduces the potential for large-scale mergers or acquisitions in the next few years.

2019 Guidance

Anheuser Busch said in its recent earnings call that it expects strong top-line and EBITDA growth in 2019, with CEO Brito saying that “strong really means … it's something that you write home about.”

That’s driven some excitement among investors, said Ferreira, who added that BofA now expects organic sales growth above 5.6 percent and EBITDA growth above 5.5 percent.

Price Action

Anheuser Busch shares were up 0.74 percent at $82.39 at the time of publication Tuesday. 

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