AB InBev share price sinks on dividend cut
Brewer’s market value plunges R256bn Castle Lager owner wants to settle $109bn in debt
The world’s biggest beer brewer Anheuser-Busch InBev (AB InBev) saw its shares plunge 10.59% on Thursday, the most since its inward listing on the JSE in January 2016, after cutting its interim dividend to pay off debt.
The sell-off wiped off about R256bn of AB InBev’s market capitalisation, nearly equal to the market value of Standard Bank, Africa’s largest bank.
AB InBev said on Thursday it will cut its interim dividend in half in the third quarter as it prioritises repaying $109bn in debt, partly incurred as a result of its acquisition of SABMiller in 2016.
The decision to reduce dividend payouts comes as the debt-laden owner of the Castle Lager, Hansa Pilsner and Redds brands says it is seeing “the volatility out there and wants to be proactive”. With a big footprint in emerging markets, the weakening and volatility of emerging-market currencies have weighed on performance.
Speaking to Bloomberg in an interview, CFO Felipe Dutra said it could always “accelerate the pace at which dividends are expected to grow” if the “world proves we were too conservative”.
He said there was “no correlation” between the US Federal Reserve increasing rates and the dividend cut, as 93% of the company’s debt was fixed and maturities were widely spread out over several years.
In a statement on Thursday, the largest company on the JSE by market capitalisation said it was changing its dividend policy in the light of recent currency volatility and would prioritise paying off debt. It also warned shareholders that dividend growth “is expected to be modest”. In the September quarter, AB InBev, whose other
household brands include Budweiser, Corona and Stella Artois, cut its interim dividend to €0.80 from €1.60, saving about €4bn with its new dividend policy.
Speaking to journalists on a conference call, Dutra on Thursday said the brewer’s acquisitive drive was slowing down, hence the prioritisation of organic growth. “They are reaching the end of the road,” he said.
The company said that, in addition to reducing debt, its other main priorities for capital allocation included investing in its brands and taking advantage of organic growth opportunities.
AB InBev, which is historically acquisitive, appeared to take a lukewarm stance on acquisitions, saying it would consider suitable acquisitions if they arose, “subject to our strict financial and deleveraging commitment”.
Analyst Chris Gilmour said the sell-off in the company’s shares on Thursday was largely expected because investors would be concerned about low growth prospects.
“Do not get me wrong, AB InBev is an efficient company. They cut expenses to the bone, but investors would be concerned that there is now a reduced scope for meaningful acquisitions. I can understand why the share price has fallen.”
Gilmour described the $100bn acquisition of SABMiller as an “audacious transaction”, but said AB InBev “vastly overpaid” for the Johannesburg-born brewer. AB InBev said the integration of SABMiller was progressing well, “with synergies and cost savings of $229m captured during [the third quarter of 2018] and $588m captured [during the first nine months of 2018]”.
In the September quarter, AB Inbev said its overall revenue grew 4.5% to $14.7bn, from $13.3bn in the corresponding quarter in 2017. The company attributed the increase in revenue to, among others, a 0.5% growth in beer volumes.
“A diverse group of markets contributed to this growth, including China, Mexico, Western Europe and many of our African markets.
“At the same time, we faced macroeconomic challenges in relevant markets such as Brazil, Argentina and SA,” the company said.