Anheuser-Busch InBev SA ADRBUD

Morningstar Rating

Stock Research and Analysis

by Ann Gilpin

Anheuser-Busch/InBev is a global beer powerhouse and a force to be reckoned with. Its massive scale and cutthroat cost-cutting management team have enabled it to generate outsized profit margins and cash flows. However, to make its recent purchase of Anheuser-Busch pay off, InBev's management will be using its old playbook in new territory, and we think this strategy abounds with risk. Read more

Bulls Say

A-B/InBev's scale in the global beer market is massive. It controls 25% of global volume and an even larger share of EBITDA.

A-B/InBev owns four of the world's top 10 brands, including Bud Light and Budweiser, which are the number-one and number-two beer brands in the world.

A-B/InBev has a dominant presence in several key markets, such as Brazil (68% share), Canada (43% share), and the U.S. (50% share), the latter of which is the most profitable beer market in the world.

A-B/InBev generates impressive EBITDA margins of about 34%, and free cash flow has averaged about 14% of sales since 2005.

Although we are cautious of the aggressiveness of the cost-cutting strategy, A-B/InBev is run by an experienced management team with a strong track record. Read more

Bears Say

After paying roughly $52 billion to buy Anheuser-Busch in 2008, A-B/InBev remains highly leveraged, with debt standing at more than 70% of capital. A-B/InBev has about EUR 27 in debt per share.

A-B/InBev has considerable exposure to volatile emerging markets. In fiscal 2008, the firm generated about 45% of its EBITDA from AmBev, which has a substantial portion of its debt denominated in U.S. dollars while generating revenues in foreign currencies.

We think there are significant integration risks with the Anheuser-Busch merger, and if management does not proceed with caution with its cost-cutting efforts, we think there could be repercussions.

SABMiller, having lost its number-one spot after the A-B and InBev merger, is likely on the prowl for its own acquisition targets and could be quick to catch up in scale.

MillerCoors could be a more formidable competitor in the U.S. as it will be significantly increasing its profitability and scale. Read more

Strategy

A-B/InBev's ultimate goal and mantra is to become the "Best Beer Company in a Better World," and we think increasing EBITDA will take top priority. We expect A-B/InBev's first step in this direction will be to slash corporate costs at Anheuser-Busch and extend payables to free up working capital. Read more

Management

A-B/InBev is run by a management team we have likened to as machete-wielding investment bankers. Jorge Paulo Lemann is a Harvard graduate and former Brazilian tennis champion who founded an investment bank in Brazil that eventually bought Brazil-based brewer Brahma in 1989. Read more

Profile

A-B/InBev is the largest brewer in the world, controlling about 25% of global volume, and owns four of the top 10 selling beers in the world. Its brands include Budweiser, Bud Light, Stella Artois, and Beck's. Read more

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