It’s beer time whichever way you look at it
The inward listing of mega brewer Anheuser-Busch InBev on the JSE in January has propelled the bourse into one of the biggest in the world in terms of trade volumes and the value of its listings. In one fell swoop, it brought more than R3 trillion worth of shares into Africa’s largest bourse, about double the single largest counter.
More importantly, AB InBev gives SA investors an opportunity to obtain exposure to a much larger brewer even before it takes over SABMiller for US$106bn.
From the southernmost tip of the Cape to the northernmost end of Norkapp in Norway, and from the eastern tip of Russia’s Lavrentiya region all the way west to Alaska’s Hooper Bay, beer drinkers will find it increasingly difficult to enjoy a tipple without touching any of the combined group’s products.
The AB InBev and SABMiller combination will be the biggest beer brewer in the world, by far. In 2014 AB InBev produced 459m hectolitres (hl) of beer and non-alcoholic beverages in 25 countries, says the company in its January pre-listing statement. In the six months to September last year, SABMiller produced 174m hl of beverages, implying a 348m hl annual output.
The combined entity will brew up a storm across continents, producing some 810m hl and leaving its closest competitor, Heineken, languishing with only 180m hl of beer volumes.
With both listings (SABMiller will be reversed into AB InBev once the deal goes ahead) giving investors exposure to both companies on the JSE, SA residents will get an opportunity to participate in a truly global and world class company without touching their foreign currency allowances.
The Public Investment Corp (PIC), SABMiller’s biggest local shareholder, says AB InBev’s listing on the JSE is a great development which gives South Africans an opportunity to replace what they had in SABMiller with a bigger and much more geographically diversified asset. “The PIC will take the earliest opportunity to acquire AB InBev shares,” says CE Daniel Matjila. That will help it expand its 3.1% holding in SABMiller.
AB InBev stock has declined to just under R1,820/share at the time of writing, down from the listing price of R1,934 in January. It is trading on an estimated forward PE of 22.4 times, a lot less pricey than SABMiller’s forward PE of 27.1. Of course, SABMiller owes that spectacular rating mainly to its relentless pursuit by its larger rival.
For South African investors to be able to trade in a company like AB InBev “is a fantastic opportunity”, says Anthony Sedgwick, portfolio manager at Abax Investments.
AB InBev will also invest and modify local breweries to produce beer brands like Leffe and Budweiser in SA.
In addition to selling and giving away shares to black beer retailers under the Zenzele BEE programme, SABMiller sources raw agricultural products like maize, barley and hops from farmers in SA. In Uganda, Tanzania and Zambia it has programmes to source sorghum to brew local beer.
“In Uganda alone, we’re sourcing sorghum from around 9,000 smallholder farmers who we’ve helped to improve their productivity, increase their yields, feed their families and generate an income,” says SABMiller corporate affairs director Andy Wales, on its website.
Listing on the JSE is only a part of AB InBev’s involvement in SA, says CE Carlos Brito. The company will expand and improve SABMiller’s supply chains and empowerment practices in order to entrench itself in its communities, he says.
In an attempt to persuade local regulators and investors to give the green light for its SABMiller advances, AB InBev pledged to continue with and enhance its agricultural supply agreements. Says Brito: “We’ve been doing things for the past 30 years in agriculture. SABMiller has been helping agriculture. We’ll [both] do more.”
Astute investors may have taken advantage of the rand’s (temporary) strength before the national budget to fill up their share portfolios. They may now need to head to the pub to mourn yet another increase in sin tax.