AB InBev dream looks a bit flat

Dream Big is the mantra of AB InBev. The sale of a minority stake in its Asian business would have been the largest initial public offering (IPO) of 2019. But it had to scrap its plans on Friday, after investors baulked at the asking price. It can shrug it off. But the misstep will add to worries about the limits to AB InBev’s acquisition-led growth.

On Monday, the share price barely wobbled. Fair enough. Asia accounts for just 14% of group ebitda and the company was looking to float as little as 15% of it. Moreover, AB InBev shares had already fallen 4% last week, amid reports of soft demand for the offering.

The punchy valuation the parent sought for its business was at least $54bn, or 18.4 times 2019 ebitda, says Jefferies. The broker reckoned it was worth just $46bn. To the parent, that is a difference of €3-€4 a share.

CEO Carlos Brito had insisted he would only sell at the right price. Even so, the U-turn is a setback. AB InBev’s balance sheet is bloated by about $100bn of debt. Its 2018 net debt-to-ebitda ratio was a lofty 4.6 times. Had it succeeded in raking in up to $10bn from the IPO, the added cash would have helped it reach its four times net debt to ebitda target by year end. Instead, it is likely to need until the end of 2020, keeping more conservative investors away. Any setback could put the dividend at risk again. It was halved last October to save about $4bn a year.

AB InBev might have another go at flogging shares in its Asian business should a market-lifting breakthrough occur on US-China trade disputes.

But investors should leave off the beer goggles when looking at the brewer’s prospects. One of the main motivations for the IPO was to create an Asian vehicle that could acquire regional rivals.

Its cancellation will hamper AB InBev’s ability to make its next significant earnings-boosting deal. Hardly the dream scenario. /London, July 15