It’s beer time whichever way you look at it

Financial Mail - Investors Monthly - - Analysis - Sikonathi Mantshants­ha

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.

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