Market Cap (EUR Mil) 124,176
52-Week High (EUR) 79.60
52-Week Low (EUR) 63.44
52-Week Total Return % 19.1
YTD Total Return % 20.2
Last Fiscal Year End 31 Dec 2012
5-Yr Forward Revenue CAGR % 8.9
5-Yr Forward EPS CAGR % 11.0
Price/Fair Value 1.07
2011 2012
2013(E) 2014(E)Price/Earnings 15.5 19.4 20.8 18.0
EV/EBITDA 8.7 10.9 9.5 8.2
EV/EBIT 10.6 13.3 11.6 10.1
Free Cash Flow Yield % 9.2 7.2 9.2 7.8
Dividend Yield % 3.1 2.6 2.1 2.4
2011 2012
2013(E) 2014(E)Revenue 39,046 39,758 44,682 51,408
Revenue YoY % 7.6 1.8 12.4 15.1
EBIT 12,607 12,765 14,452 16,707
EBIT YoY % -18.5 1.3 13.2 15.6
Net Income, Adjusted 6,517 7,276 7,940 9,023
Net Income YoY % 28.9 11.6 9.1 13.6
Diluted EPS 3.06 3.39 3.71 4.30
Diluted EPS YoY % 28.6 10.7 9.7 15.7
Free Cash Flow 9,656 8,275 2,261 12,015
Free Cash Flow YoY % 3.3 -14.3 -72.7 431.3
AB InBev Posts Good Results Despite Falling Volume
See Page 2 for the full Analyst Note from 31 Oct 2013
Thomas Mullarkey, CFA Senior Stock Analyst
thomas.mullarkey@morningstar.com +1 (312) 696-6297
Research as of 31 Oct 2013 Estimates as of 31 Jul 2013 Pricing data through 19 Nov 2013 Rating updated as of 19 Nov 2013
Analyst's Perspective 14 Feb 2013
AB InBev is an impressive brewer. Already the world's largest brewer, the company is set to become even bigger in late 2013 after it acquires the remaining stake of Modelo.
AB InBev has successfully executed its strategy to focus on acquiring efficient scale in the countries with the largest beer profit pools. Through a series of deals and its ownership in AmBev, the company has leading share in the highly profitable markets of Brazil, Argentina, the United States, Canada, and Belgium. We expect that the firm will be successful in closing the Modelo transaction and consequently will be able to generate more than $1 billion of annual synergies from combined purchasing opportunities and sharing of best practices. AB InBev's scale, focus on costs, and vast mix of proprietary returnable bottles all help to fortify the firm's wide economic moat.
Key Investment Considerations
Anheuser-Busch InBev is the largest brewer in the world and one of the world's top five consumer products companies, as measured by EBITDA.
Following the Modelo acquisition, the company's portfolio will contain seven of the top 10 selling beer brands and 17 brands with retail sales in excess of $1 billion. AB InBev was created by the 2008 merger of Belgium-based InBev and U.S.-based Anheuser-Busch. The firm has a 62%
economic interest in AmBev.
Profile Vital Statistics
Valuation Summary and Forecasts
Financial Summary and Forecasts
The primary analyst covering this company does not own its stock.
Currency amounts expressed with "$" are in U.S. dollars (USD) unless otherwise denoted.
Historical/forecast data sources are Morningstar Estimates and may reflect adjustments.
(USD Mil)
Contents
Analyst's Perspective Key Investment Considerations Morningstar Analysis
Analyst Note Thesis
Valuation, Growth and Profitability Scenario Analysis
Economic Moat Moat Trend Bulls Say/Bears Say Credit Analysis
Financial Health Capital Structure Enterprise Risk Management & Ownership Analyst Note Archive Additional Information Morningstar Analyst Forecasts Comparable Company Analysis Methodology for Valuing Companies
Fiscal Year:
Fiscal Year:
3 With volumes exceeding 400 million hectoliters, AB InBev is the largest brewer in the world. This scale provides ample operating and marketing efficiencies, resulting in a wide economic moat.
3 Although we have raised our fair value estimate to $88 due to synergies related to the pending Modelo acquisition and continued growth in Latin America, we believe that the company's shares are slightly overvalued, and would wait for a pullback before building a position.
3 The company's emerging-market exposure and pricing power should generate 7% to 8% long-term revenue growth.
1 1
2 2 3 3 4 4 5
6 6 6 8 9 - 10 14 16
Budweiser is well- positioned to remain the King of Beers in the U.S.
Morningstar Analysis
AB InBev Posts Good Results Despite Falling Volume 31 Oct 2013
Despite volume falling 1.3% in the third quarter, Anheuser- Bush InBev was able to increase sales 3% and expand EBITDA 10.5% as strong pricing and cost discipline more than offset volume declines in five of its eight segments.
We believe the firm's wide moat is fortified by leading scale and strong brands. While we are likely to increase our EUR 72/$95 fair value estimates modestly for the time value of money, we currently view the shares as slightly expensive.
Excluding acquisitions, we believe AB InBev can increase sales around 6% per year and earnings per share 8%-10%
through 2017.
In the U.S., sales to retailers fell 2.7% as Budweiser initiated a price increase. The price increase and a richer brand mix helped to increase segment revenue per hectoliter by 3.2%
and EBITDA margins by 80 basis points. While overall beer industry volume continued to fall in the third quarter, we are optimistic that other brewers will follow Bud's lead and raise prices later this quarter, helping to drive profit growth across the industry.
Regionally, volume was weak in Brazil (down 5%) and dismal in Central and Eastern Europe (down 18.9%). Brazil's frail economy and persistent food inflation put a crimp in the disposable income of AmBev's core consumer. Softness in Russia and the Ukraine was exacerbated by destocking in the channel. Somewhat offsetting this weakness was strength in China, where the firm increased volume 8.3%
driven by the Budweiser, Harbin, and Sedrin brands. Year to date, AB InBev has agreed to buy five Chinese breweries for $1.05 billion. These deals are expected to close in 2014 and add 19 million hl (5%) to AB InBev's total capacity. We believe it will take time for consolidation and premiumization to take hold in China's beer industry.
The integration of Modelo continues to progress smoothly.
The firm has already achieved $325 million of synergies,
and we believe it will be successful in capturing the full $1 billion of targeted savings by 2016.
Thesis 14 Feb 2013
AB InBev is a juggernaut in the global beer market. Its massive scale and cost-cutting management team have enabled the firm to grow from a regional beer brand to the largest brewer in the world. And its pending acquisition of the remaining shares of Modelo represents another step in the right direction of the company's quest to acquire a leadership position in Mexico, one of the world's highest profit-pool countries.
Thanks to AB InBev's size, the company can outspend, outsell, and out-market any other brewer. In many of its markets (Including Argentina, Brazil, Canada, and the United States), AB InBev is the largest local brewer. This size enables the firm to spread out its fixed costs and marketing expenses across greater volumes; additionally, the firm's vast brewery footprint minimizes the distance each beer has to travel before it is consumed. This scale advantage leads to a meaningful cost advantage versus the company's smaller peers.
AB InBev is focusing its portfolio on premium brands. The focus of this strategy is to drive a more profitable mix of business and to capture new volume growth. Following the Modelo acquisition, AB InBev's portfolio will have seven of the world's top beer brands and a dominant share in several key markets [Brazil (69%), Argentina (77%), Canada (41%), the United States (48%), Belgium (57%), and Ukraine (36%)].
With this commanding market position, and the premiumization of the company's mix, we expect that the company will be growing operating profit by 7%-8% per year over the next decade.
As a result of the Budweiser acquisition, AB InBev is the
largest brewer in the U.S., holding 48% share. Although
mega-brewers in the U.S. are facing competitive threats from a resurgent spirits market and a fast-growing craft beer movement, we believe that Budweiser is well-positioned to remain the King of Beers in the U.S. Approximately 500 wholesalers distribute AB InBev's beers in the U.S., and the vast majority of these wholesalers' volumes come from the AB InBev's portfolio. This scale and distribution network enables the company to quickly and successfully roll out new products (such as Bud Light Platinum) coast to coast.
Additionally, the company's craft beers (including Shock Top and Goose Island) benefit from a distribution footprint that small brewers cannot match.
AB InBev has a 62% economic interest in AmBev ABV, the leading economic Latin American and Canadian brewer.
AmBev's business in Brazil has an especially wide economic moat. The firm's distribution system services almost 1 million points of sale and utilizes proprietary 630-milliliter and 1-liter returnable glass bottles. Returnable bottles are the lowest-cost packaging alternative, and by shifting away from the standard 600-milliliter glass container (which can be used by its competitors), we believe that AmBev's competitive position in Brazil is fortified.
While China is the world's largest beer market in terms of volume, it is one of the more fragmented markets, and AB InBev is third-largest brewer there with 12% market share.
Through 2020, the Chinese market is expected to represent more than 40% of the global beer volume growth as per capita consumption levels are expected to climb approximately 30% to 47 liters per year. The company's main brands in China are Budweiser (an ultra-premium beer in China) and Harbin. The company expects that in the coming decade, the premium segment will grow much faster than the overall beer category. Given these factors, we believe that China will increasingly become a more important part of AB InBev's overall portfolio during the next decade.
Valuation, Growth and Profitability 31 Jul 2013 Following AB InBev's second quarter earnings we are increasing our fair value estimate from EUR 67 to EUR 72.
The increase in fair value stems from the time-value of money, and a slightly lower discount rate. We continue to believe that the firm will be successful in garnering $1 billion of operational synergies from the Modelo acquisition and that its strong brands and pricing power should enable margin expansion over the next several years.
We believe the company will earn around $5.67 per share during fiscal 2014. Following the acquisition, we believe the company will be able to organically grow revenue around 5% to 6% per year as volume growth in emerging markets combined with pricing power more than offset sluggish volume growth in much of Europe and North America. We expect that the company's operating leverage will continue to bear fruit and foresee that operating profit will grow at a faster pace than revenue, climbing around 7% to 8% per year. Our fair value estimate equates to roughly 16.8 times our 2014 EPS estimate of $5.67.
Scenario Analysis
In our bull-case scenario shares could fetch EUR 95. In this
scenario, emerging-market growth is faster than planned, and the company's North American beer business bounces back, gaining share at the expense of craft brewers and spirits makers. In this scenario, the company's top line could grow roughly 7%-8% per year, almost 200 basis points higher than our base case, and EBIT could climb 8%-9% per year. At this valuation, the company would be worth roughly 20 times 2014 earnings.
However, if consumers scale back their purchases of AB InBev products and competition increases, the shares could be worth only EUR 50, according to our downside scenario.
Should such an outcome occur, we believe that the company's top line would grow only around 3% per year, as anemic volume growth is propped up by inflationary pricing.
Similarly, operating leverage would be negligible and operating profit would grow at roughly the same rate as sales. Should this occur, the stock could be trading at roughly 13 times our estimate for 2014 earnings.
Economic Moat
As the world's largest brewer, AB InBev has a wide economic moat driven by a combination of scale, operating leverage, and leading market share. Along with its 62%
economic interest in AmBev, AB InBev has seven of the world's top beer brands: Bud Light, Budweiser, Corona, Skol, Stella Artois, Brahma, and Beck's. Additionally, the company holds leading market positions in some of the world's most profitable beer markets, including the United States, Brazil, Mexico, and Canada. Thanks to AB InBev's scale in these profitable markets, the company is able to gain meaningful operating leverage by spreading out its overhead and marketing costs across far greater volumes than any of its peers.
The company's Brazilian beer segment has substantial barriers to entry. AmBev's distribution system, which services almost 1 million points of sale, would be costly and
time-consuming for any competitor to duplicate.
Additionally, AmBev's 630-milliliter and 1-liter returnable glass bottles used in Brazil are proprietary. Returnable glass bottles are the lowest-cost packaging alternative that is commonly used. By shifting away from the standard 600-milliliter glass container (which could be used by its competitors), we believe that AmBev strengthened its competitive position in Brazil.
Moat Trend
We believe that AB InBev's moat trend is stable. Although
consumers have a variety of options when choosing an
alcoholic beverage, we note that market shares tend to be
relatively steady, and tastes change slowly. We believe that
the company's scale, and proprietary returnable glass
bottles, create meaningful advantages versus other
brewers.
Bulls Say/Bears Say
Bulls Say Bears Say
3 AB InBev's worldwide scale and distribution is massive. It is the leading global brewer with 17 brands that generate more than $1 billion per year in sales.
3 AB InBev has a 62% economic stake in AmBev, which has dominant share in several key markets, including Brazil (69%), Argentina (77%), and Canada (41%).
Additionally AB InBev has leading share in the United States (48%), Belgium (57%), and Ukraine (36%).
3 The company has been an efficient acquisitor of brands. Its recent quest to acquire the remainder of Modelo should result in more than $1 billion of annual cost synergies.
3 The company's flagship Budweiser brand is facing meaningful headwinds in the United States from craft brewers, spirits companies, and persistently high levels of unemployment.
3 The European beer market is much more fragmented than that of the Americas, and significant retailer and pub consolidation in many countries result in slimmer operating profits for InBev's European operations compared with its American businesses.
3 With its 62% economic interest in AmBev, AB InBev
is heavily leveraged to Latin America. Economic
weakness in Brazil would be detrimental to InBev's
financial results.
2013(E) 2014(E) 2015(E) 2016(E) 2017(E)
Cash and Equivalents (beginning of period) 7,051 4,504 4,690 4,891 5,074
Adjusted Available Cash Flow 965 10,368 10,100 10,734 11,411
Total Cash Available before Debt Service 8,016 14,872 14,790 15,625 16,484
Principal Payments -5,400 -5,600 -4,900 -3,600 -3,500
Interest Payments -2,368 -2,385 -2,412 -2,438 -2,668
Other Cash Obligations and Commitments — — — — —
Total Cash Obligations and Commitments -7,768 -7,985 -7,312 -6,038 -6,168
USD Millions
% of Commitments
Beginning Cash Balance 7,051 20.0
Sum of 5-Year Adjusted Free Cash Flow 43,578 123.6
Sum of Cash and 5-Year Cash Generation 50,629 143.6
Revolver Availability — —
Asset Adjusted Borrowings (Repayment) — —
Sum of Cash, 5-Year Cash Generation, Revolver and Adjustments 50,629 143.6
Sum of 5-Year Cash Commitments -35,270 —
ABI Sector Universe
Business Risk 2 4.1 5.2
Cash Flow Cushion 6 6.5 6.1
Solvency Score 5 4.9 5.0
Distance to Default — 2.9 3.9
Credit Rating A- A- BBB+
Five Year Adjusted Cash Flow Forecast (USD Mil)
Credit Analysis
Cumulative Annual Cash Flow Cushion
Cash Flow Cushion Possible Liquidity Need
Adjusted Cash Flow Summary
Credit Rating Pillars Peer Group Comparison
Source: Morningstar Estimates
Note: Scoring is on a scale 1-10, 1 being Best, 10 being Worst
Financial Health
Even after AB InBev acquires the remainder of Modelo, the firm will be in great financial health. Thanks to the company's strong portfolio of brands, wide economic moat, and robust cash flows, we believe that the firm will successfully reduce leverage in the next couple of years, continue to pay out a growing dividend, and have cash left over for opportunistic investments and acquisitions.
Capital Structure
Although the company ended fiscal 2011 with roughly $35 billion of net debt, representing 2.3 times EBITDA, the firm will raise another $14 billion of debt to close the Modelo transaction. We expect the firm to steadily lower its leverage to 2.0 times net debt/EBITDA by 2014. AB InBev's equity trades in both Europe (Euronext: ABI) and the United States (NYSE: BUD), with each American Depositary Receipt (BUD) equivalent to one share (ABI). Given the company's strong cash flows, we expect the firm is well-positioned to pay down its debt, continue paying its dividend, and opportunistically consider acquisitions as they become available. We currently assign AB InBev an issuer credit rating of A-, implying low default risk.
Enterprise Risk
AB InBev is dependent on the global beer market. Should
governments look to increase the regulatory oversight or
excise taxes levied against brewers, the company's growth
could be negatively affected. Additionally, consumers'
tastes may shift to other elixirs (such as wine or spirits) or
other brews. Increased competition could erode the
companies pricing power, causing margins and profits to
suffer. Additionally, through the firm's 62% economic
interest in AmBev, AB InBev is heavily leveraged to the Latin
American market, especially Brazil and Argentina. Should
the economic or political environment in Brazil become
unstable, AB InBev's results likely would suffer.
Credit Analysis
Name Position Shares Held Report Date* InsiderActivity
NA NA NA NA NA
Top Owners % of Shares
Held % of Fund Assets Change
(k) Portfolio Date
Harbor International Fund 0.65 2.24 — 30 Sep 2013
L&G Pension PMC Europe(Ex UK) Inx Acc 0.29 1.64 112 31 Mar 2013
Fidelity Diversified International Fund 0.25 1.58 380 30 Sep 2013
Vanguard Total Intl Stock Idx Fund 0.25 0.40 80 31 Jul 2013
Fidelity Series International Growth 0.22 3.37 — 30 Sep 2013
Concentrated Holders
Elite 1818 PEA Tranquillité 0.02 54.15 389 30 Jun 2013
iShares MSCI Belgium Capped 0.01 22.58 — 08 Nov 2013
Oddo PEA Sécurité 0.01 16.49 178 31 Dec 2012
KBC Multi Track Belgium 0.01 11.22 -2 30 Sep 2013
iShares STOXX Europe 600 Food & Bev (DE) 0.01 10.49 -13 31 Oct 2013
Top 5 Buyers % of Shares
Held % of Fund Assets
Shares Bought/
Sold (k) Portfolio Date Government Pension Fund of Norway - Global 1.21 0.22 3,977 31 Dec 2011
Fidelity Management & Research Company 0.81 0.73 472 30 Sep 2013
British Columbia Inv Management Corp 0.03 0.07 440 31 Mar 2010
La Banque Postale Structured Asset Mngt 0.03 10.34 422 30 Sep 2012
Véga Investment Managers 0.03 8.78 391 30 Jun 2013
Top 5 Sellers
Capital Research and Management Company — 1.95 -29,306 30 Sep 2013
Brc S.a.r.l. 52.23 — -3,033 31 Dec 2012
Grantham, Mayo, Van Otterloo & Co., LLC 0.03 0.21 -1,127 31 Aug 2013
Lyxor International Asset Management 0.01 1.44 -633 31 Oct 2013
Janus Capital Management LLC — 0.60 -471 30 Sep 2013
Management 14 Feb 2013
Management & Ownership
Management Activity
Fund Ownership
Institutional Transactions
*Represents the date on which the owner’s name, position, and common shares held were reported by the holder or issuer.
We believe that AB InBev's management team has been an exemplary steward of shareholders' capital. Through a series of acquisitions and a focus on cost control, the global brewer has built a wide economic moat. The firm's culture instills the responsibility for the company's performance and the creation of shareholder value into each of its managers.
Compensation is determined on the basis of "stretched but achievable target," which requires detailed, quantitative performance goals throughout the organization.
A significant portion of AB InBev's senior management
consists of the Brazilian team that bought Brazil-based
Brahma in 1989, merged the company with Antarctica in
1999 to form AmBev, and then merged with Interbrew in
2004 to create InBev. The team has significant experience
dealing with the nuances of integrating acquired firms with
differing corporate cultures. CEO Carlos Brito joined AB
InBev's predecessor AmBev in 1989 holding various roles in
finance, operations, and sales before becoming AmBev CEO
in 2004 and AB InBev CEO in 2006.
Analyst Notes
AB InBev Delivers Solid Pricing Growth and Margin Expansion; Raising Our Fair Value Estimate 31 Jul 2013 Despite falling volumes in the second quarter, AB InBev’s results were bolstered by meaningful price increases and an improving mix of products. In June, the company closed the Modelo acquisition and remains committed to delivering
$1 billion of cost savings by 2017. We believe that AB InBev’s wide economic moat remains strong, bolstered by strong brands and leading share in most of the world’s most profitable beer markets. Given the company’s solid performance, we are increasing our fair value estimate on the company’s U.S.-listed shares to $95 from $88 and believe that the shares are fairly valued.
While AB InBev’s global beer volumes declined 1% in the quarter, its Focus Brands grew volumes 0.6%. Organic volume growth was strongest in Asia at 5.1% and weakest in Western Europe, negative 7.2%, and Eastern Europe, negative 6.2%, where economic malaise and foul weather affected results. Meanwhile, in the United States, share losses in the value segment were somewhat offset by continued share growth in the Bud Light family, especially from the Lime-A-Rita and Straw-Ber-Rita drinks, which are priced at a 60% to 70% premium over Bud Light.
AB InBev’s top line organically grew 3.9% in the quarter
supported by pricing growth of 5.8%. This pricing power
helped to drive up EBITDA to $3.9 billion (36.8% of sales)
in the quarter compared with $3.8 billion (36.2% of sales)
in the comparable period. Over the next few years, AB InBev
has committed to squeezing out $1 billion of synergies from
the Modelo business. (For reference, these synergies equate
to roughly 8% of AB InBev’s 2012 EBIT of $12.76 billion.)
Longer term, additional cost savings for Modelo could be
realized as InBev alters Corona’s global distribution network
to piggy-back on its own brands, thereby either bringing
more of the distribution in-house or being able to negotiate
better terms.
Growth (% YoY)
3-Year
Hist. CAGR 2010 2011 2012
2013 20145-Year Proj. CAGR
Revenue 2.7 -1.3 7.6 1.8 12.4 15.1 8.9
EBIT 7.6 50.9 -18.5 1.3 13.2 15.6 9.7
EBITDA 5.9 39.7 -15.7 0.8 14.5 15.5 9.8
Net Income 22.8 28.7 28.9 11.6 9.1 13.6 8.2
Diluted EPS 21.9 27.3 28.6 10.7 9.7 15.7 11.0
Earnings Before Interest, after Tax 5.8 7.6 7.2 2.8 -0.8 11.9 5.5
Free Cash Flow -20.5 -43.3 3.3 -14.3 -72.7 431.3 9.6
Profitability
3-Year
Hist. Avg 2010 2011 2012
2013 20145-Year Proj. Avg
Operating Margin % 35.7 42.6 32.3 32.1 32.3 32.5 32.8
EBITDA Margin % 42.9 50.3 39.4 39.0 39.7 39.9 40.2
Net Margin % 16.3 13.9 16.7 18.3 17.8 17.6 17.7
Free Cash Flow Margin % 23.8 25.8 24.7 20.8 5.1 23.4 18.6
ROIC % 12.6 12.1 13.4 12.4 11.6 13.2 13.8
Adjusted ROIC % 43.1 43.8 48.6 36.8 36.1 42.1 44.4
Return on Assets % 5.0 3.6 5.2 6.2 10.9 6.6 7.9
Return on Equity % 15.6 12.3 16.1 18.4 30.5 17.6 22.1
Leverage
3-Year
Hist. Avg 2010 2011 2012
2013 20145-Year Proj. Avg
Debt/Capital 0.53 0.56 0.52 0.52 0.47 0.47 0.48
Total Debt/EBITDA 2.64 2.46 2.61 2.86 2.53 2.19 2.13
EBITDA/Interest Expense 4.91 4.28 4.30 6.13 7.50 8.60 8.82
2011 2012
2013(E) 2014(E)Price/Fair Value 1.13 1.08 — —
Price/Earnings 15.5 19.4 20.8 18.0
EV/EBITDA 8.7 10.9 9.5 8.2
EV/EBIT 10.6 13.3 11.6 10.1
Free Cash Flow Yield % 9.2 7.2 9.2 7.8
Dividend Yield % 3.1 2.6 2.1 2.4
Cost of Equity % 10.0
Pre-Tax Cost of Debt % 4.5
Weighted Average Cost of Capital % 8.2
Long-Run Tax Rate % 25.0
Stage II EBI Growth Rate % 3.0
Stage II Investment Rate % 25.0
Perpetuity Year 20
USD Mil Firm Value (%) Per Share
Value
Present Value Stage I 79,404 44.8 49.01
Present Value Stage II 42,193 23.8 26.05
Present Value Stage III 55,641 31.4 34.35
Total Firm Value 177,237 100.0 109.41
Cash and Equivalents 13,878 — 8.57
Debt -44,341 — -27.37
Preferred Stock — — —
Other Adjustments — — —
Equity Value 146,774 — 90.60
Projected Diluted Shares 1,620
Fair Value per Share —
Morningstar Analyst Forecasts
Forecast Fiscal Year Ends in December
Financial Summary and Forecasts
Valuation Summary and Forecasts
Key Valuation Drivers
Discounted Cash Flow Valuation
Additional estimates and scenarios available for download at http://select.morningstar.com.
The data in the table above represent base-case forecasts in the company’s reporting currency as of the beginning of the current year. Our fair value estimate may differ from the equity value per share shown above due to our time value of money adjustment and in cases where probability-weighted scenario analysis is performed.
(EUR)
2010 2011 2012
2013 2014Revenue 36,297 39,046 39,758 44,682 51,408
Cost of Goods Sold 16,151 16,634 16,447 19,888 21,894
Gross Profit 20,146 22,412 23,311 24,794 29,514
Selling, General & Administrative Expenses 4,681 9,805 10,546 10,342 12,807
Other Operating Expense (Income) — — — — —
Other Operating Expense (Income) — — — — —
Depreciation & Amortization (if reported separately) — — — — —
Operating Income (ex charges) 15,465 12,607 12,765 14,452 16,707
Restructuring & Other Cash Charges 268 278 50 136 75
Impairment Charges (if reported separately) — — — — —
Other Non-Cash (Income)/Charges -521 -623 -624 -6,415 —
Operating Income (incl charges) 15,718 12,952 13,339 20,731 16,632
Interest Expense 4,261 3,575 2,532 2,368 2,385
Interest Income 525 438 344 202 161
Pre-Tax Income 11,982 9,815 11,151 18,566 14,408
Income Tax Expense 1,920 1,856 1,717 2,321 3,098
Other After-Tax Cash Gains (Losses) — — — — —
Other After-Tax Non-Cash Gains (Losses) — — — — —
(Minority Interest) -6,036 -2,104 -2,191 -2,100 -2,287
(Preferred Dividends) — — — — —
Net Income 4,026 5,855 7,243 14,145 9,023
Weighted Average Diluted Shares Outstanding 1,611 1,614 1,628 1,620 1,591
Diluted Earnings Per Share 2.50 3.63 4.45 8.73 5.67
Adjusted Net Income 5,057 6,517 7,276 7,940 9,023
Diluted Earnings Per Share (Adjusted) 3.14 4.04 4.47 4.90 5.67
Dividends Per Common Share 0.90 1.45 1.69 1.67 1.93
EBITDA 18,506 15,735 16,086 24,038 20,436
Adjusted EBITDA 18,253 15,390 15,512 17,759 20,511
Morningstar Analyst Forecasts
Income Statement (USD Mil)
Fiscal Year Ends in December Forecast
2010 2011 2012
2013 2014Cash and Equivalents 4,511 5,320 7,051 4,504 4,690
Investments 641 103 6,827 6,827 6,827
Accounts Receivable 4,638 4,121 4,023 4,407 4,789
Inventory 2,409 2,466 2,500 2,997 3,119
Deferred Tax Assets (Current) 366 312 195 195 195
Other Short Term Assets 32 1 34 34 34
Current Assets 12,597 12,323 20,630 18,963 19,654
Net Property Plant, and Equipment 15,893 16,022 16,461 20,279 20,588
Goodwill 52,498 51,302 51,766 56,281 56,281
Other Intangibles 23,359 23,818 24,371 25,661 25,661
Deferred Tax Assets (Long-Term) 744 673 807 807 807
Other Long-Term Operating Assets 1,713 1,349 1,240 1,240 1,240
Long-Term Non-Operating Assets 7,538 6,940 7,346 13,761 13,761
Total Assets 114,342 112,427 122,621 136,993 137,992
Accounts Payable 12,071 13,337 14,295 17,436 19,495
Short-Term Debt 2,933 5,567 5,390 6,000 6,000
Deferred Tax Liabilities (Current) 478 499 543 543 543
Other Short-Term Liabilities 238 241 180 180 180
Current Liabilities 15,720 19,644 20,408 24,159 26,218
Long-Term Debt 41,961 34,598 38,951 39,000 39,000
Deferred Tax Liabilities (Long-Term) 11,909 11,279 11,168 11,168 11,168
Other Long-Term Operating Liabilities 5,953 5,862 6,653 6,653 6,653
Long-Term Non-Operating Liabilities — — — — —
Total Liabilities 75,543 71,383 77,180 80,980 83,039
Preferred Stock — — — — —
Common Stock 1,733 1,734 1,734 1,734 1,734
Additional Paid-in Capital 17,535 17,557 17,574 17,574 17,574
Retained Earnings (Deficit) 13,656 17,820 21,677 32,249 37,212
(Treasury Stock) — — — — -6,022
Other Equity 2,335 381 157 157 157
Shareholder's Equity 35,259 37,492 41,142 51,714 50,654
Minority Interest 3,540 3,552 4,299 4,299 4,299
Total Equity 38,799 41,044 45,441 56,013 54,953
Morningstar Analyst Forecasts
Balance Sheet (USD Mil)
Fiscal Year Ends in December Forecast
2010 2011 2012
2013 2014Net Income 5,762 7,959 9,434 16,245 11,310
Depreciation 2,788 2,783 2,747 3,307 3,804
Amortization — — — — —
Stock-Based Compensation — — — — —
Impairment of Goodwill — — — — —
Impairment of Other Intangibles 150 47 106 — —
Deferred Taxes 238 162 -75 — —
Other Non-Cash Adjustments 1,260 836 578 -6,415 —
(Increase) Decrease in Accounts Receivable -190 174 -102 -384 -382
(Increase) Decrease in Inventory -134 -157 -130 -497 -122
Change in Other Short-Term Assets — — — 3,870 —
Increase (Decrease) in Accounts Payable 550 1,392 1,331 3,141 2,058
Change in Other Short-Term Liabilities -519 -710 -621 — —
Cash From Operations 9,905 12,486 13,268 19,267 16,669
(Capital Expenditures) -2,344 -3,376 -3,264 -3,900 -4,113
Net (Acquisitions), Asset Sales, and Disposals 386 106 -1,389 -12,900 —
Net Sales (Purchases) of Investments -588 539 -6,688 — —
Other Investing Cash Flows — — — — —
Cash From Investing -2,546 -2,731 -11,341 -16,800 -4,113
Common Stock Issuance (or Repurchase) 215 155 102 — -6,022
Common Stock (Dividends) -1,924 -3,088 -3,632 -3,573 -4,060
Short-Term Debt Issuance (or Retirement) — — — 610 —
Long-Term Debt Issuance (or Retirement) -5,048 -6,063 3,692 49 —
Other Financing Cash Flows — — — -2,100 -2,287
Cash From Financing -6,757 -8,996 162 -5,014 -12,370
Exchange Rates, Discontinued Ops, etc. (net) 234 56 -350 — —
Net Change in Cash 836 815 1,739 -2,547 186
Morningstar Analyst Forecasts
Cash Flow (USD Mil)
Fiscal Year Ends in December Forecast
Company/Ticker Price/Fair
Value 2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)SABMiller PLC SAB GBR 1.01 17.6 21.9 18.3 8.1 9.4 8.0 16.2 20.1 11.6 1.6 2.1 1.8 2.4 3.2 2.8
Heineken N.V. HEIA NLD 1.03 17.2 17.6 16.6 9.6 9.3 8.8 19.1 16.6 15.1 2.5 2.4 2.2 1.6 1.5 1.5
Molson Coors Brewing Company TAP 0.96 10.9 13.6 12.7 9.7 10.4 9.5 10.2 18.7 12.2 1.0 1.2 1.1 2.0 2.3 2.3
Average 15.2 17.7 15.9 9.1 9.7 8.8 15.2 18.5 13.0 1.7 1.9 1.7 2.0 2.3 2.2
Anheuser-Busch Inbev SA ABI BE 1.07 19.4 20.8 18.0 10.9 9.5 8.2 13.9 10.9 13.4 3.4 3.2 3.3 3.5 3.8 3.3
Company/Ticker Total Assets
(Mil) 2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)SABMiller PLC SAB GBR — USD 6.8 8.5 11.2 12.6 15.4 14.6 17.9 12.7 14.9 8.9 5.9 7.2 3.3 2.7 3.9
Heineken N.V. HEIA NLD 35,979 EUR 5.8 8.7 9.4 24.5 40.5 40.8 27.5 11.0 12.9 9.4 3.7 4.7 2.1 1.7 1.8
Molson Coors Brewing Company TAP 16,212 USD 6.6 5.4 7.0 8.1 6.6 8.6 5.7 6.8 9.1 3.1 3.4 4.8 3.0 2.4 2.6
Average 6.4 7.5 9.2 15.1 20.8 21.3 17.0 10.2 12.3 7.1 4.3 5.6 2.8 2.3 2.8
Anheuser-Busch Inbev SA ABI BE 122,621 USD 12.4 11.6 13.2 36.8 36.1 42.1 18.4 30.5 17.6 6.2 10.9 6.6 2.6 2.1 2.4
Company/Ticker Revenue
(Mil) 2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)SABMiller PLC SAB GBR 16,713 USD 10.4 4.5 5.3 12.0 9.9 10.3 12.2 11.1 11.5 -355.0 -154.1 4.6 17.9 13.9 32.7
Heineken N.V. HEIA NLD 18,383 EUR 7.4 6.6 4.2 8.0 4.0 9.1 8.9 -0.3 5.9 -339.3 -165.5 6.0 6.0 -16.1 5.9
Molson Coors Brewing Company TAP 3,917 USD 11.4 8.0 2.9 4.8 3.2 12.1 3.7 1.3 7.4 -330.6 -146.2 43.6 4.4 2.3 7.4
Average 9.7 6.4 4.1 8.3 5.7 10.5 8.3 4.0 8.3 -341.6 -155.3 18.1 9.4 0.0 15.3
Anheuser-Busch Inbev SA ABI BE 39,758 USD 1.8 12.4 15.1 1.3 13.2 15.6 10.7 9.7 15.7 -14.3 -72.7 431.3 16.6 -1.1 15.7
Comparable Company Analysis
These companies are chosen by the analyst and the data are shown by nearest calendar year in descending market capitalization order.
Valuation Analysis
Returns Analysis
Growth Analysis
Price/Earnings EV/EBITDA Price/Free Cash Flow Price/Book Price/Sales
ROIC % Adjusted ROIC % Return on Equity % Return on Assets % Dividend Yield %
Revenue Growth % EBIT Growth % EPS Growth % Free Cash Flow Growth % Dividend/Share Growth %
Last Historical Year
Last Historical Year
Company/Ticker Net Income
(Mil) 2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)SABMiller PLC SAB GBR 3,437 USD 52.9 51.9 52.1 38.0 40.2 42.2 30.8 32.4 33.9 20.6 22.0 23.2 14.7 15.8 24.3
Heineken N.V. HEIA NLD 1,693 EUR 35.5 35.0 35.5 23.0 22.2 22.6 15.8 15.5 16.2 9.2 8.6 8.8 8.3 9.1 9.7
Molson Coors Brewing Company TAP 711 USD 39.9 42.3 42.4 31.2 30.5 32.5 24.2 23.2 25.2 18.1 17.1 17.8 19.4 12.6 18.7
Average 42.8 43.1 43.3 30.7 31.0 32.4 23.6 23.7 25.1 16.0 15.9 16.6 14.1 12.5 17.6
Anheuser-Busch Inbev SA ABI BE 7,276 USD 58.6 55.5 57.4 39.0 39.7 39.9 32.1 32.3 32.5 18.3 17.8 17.6 25.2 34.4 24.4
Company/Ticker Total Debt
(Mil) 2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)SABMiller PLC SAB GBR 19,226 USD 76.7 70.3 58.7 43.4 41.3 37.0 5.8 4.9 8.1 3.0 2.6 2.2 2.2 2.1 2.0
Heineken N.V. HEIA NLD 13,491 EUR 115.4 94.3 80.5 53.6 48.5 44.6 7.7 6.7 8.3 3.2 2.7 2.4 3.1 2.9 2.7
Molson Coors Brewing Company TAP 4,668 USD 58.6 51.9 44.3 37.0 34.2 30.7 6.6 6.1 6.8 3.8 3.3 2.8 2.0 2.0 1.9
Average 83.6 72.2 61.2 44.7 41.3 37.4 6.7 5.9 7.7 3.3 2.9 2.5 2.4 2.3 2.2
Anheuser-Busch Inbev SA ABI BE 44,341 USD 107.8 87.0 88.8 51.9 46.5 47.0 6.1 7.5 8.6 2.9 2.5 2.2 3.0 2.6 2.7
Company/Ticker Market Cap
(Mil) 2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)2012
2013(E) 2014(E)SABMiller PLC SAB GBR 51,787 GBP 0.47 1.35 1.42 0.70 0.67 0.87 0.51 0.53 0.69 0.70 0.88 4.55 31.4 46.3 49.1
Heineken N.V. HEIA NLD 29,739 EUR 1.80 0.71 1.41 0.71 0.71 0.79 0.51 0.47 0.55 0.50 0.34 0.82 20.5 38.1 31.8
Molson Coors Brewing Company TAP 9,926 USD 3.43 3.04 3.93 0.67 0.96 1.19 0.59 0.84 1.06 0.50 1.38 3.58 52.4 42.9 33.0
Average 1.90 1.70 2.25 0.69 0.78 0.95 0.54 0.61 0.77 0.57 0.87 2.98 34.8 42.4 38.0
Anheuser-Busch Inbev SA ABI BE 124,176 EUR 4.33 2.78 2.95 1.01 0.78 0.75 0.89 0.66 0.63 1.31 0.75 0.78 50.1 25.3 45.0
Comparable Company Analysis
These companies are chosen by the analyst and the data are shown by nearest calendar year in descending market capitalization order.
Profitability Analysis
Leverage Analysis
Liquidity Analysis
Gross Margin % EBITDA Margin % Operating Margin % Net Margin % Free Cash Flow Margin %
Debt/Equity % Debt/Total Cap % EBITDA/Interest Exp. Total Debt/EBITDA Assets/Equity
Cash per Share Current Ratio Quick Ratio Cash/Short-Term Debt Payout Ratio %
Last Historical Year
Last Historical Year
3 Moat Valuation 3 Three-Stage Discounted Cash Flow 3 Weighted Average Cost of Capital 3 Fair Value Estimate 3 Scenario Analysis 3 Uncertainty Ratings 3 Margin of Safety 3 Consider Buying/Selling 3 Stewardship Rating
their fair value. A number of components drive this rating: (1) our assessment of the firm’s economic moat, (2) our estimate of the stock’s intrinsic value based on a discounted cash-flow model, (3) the margin of safety bands we apply to our Fair Value Estimate, and (4) the current stock price relative to our fair value estimate.
The concept of the Morningstar Economic Moat™ Rating plays a vital role not only in our qualitative assessment of a firm’s investment potential, but also in our valuation process.
We assign three moat ratings—none, narrow, or wide—as well as the Morningstar Moat Trend™ Rating—positive, stable, or negative—to each company we cover. There are two major requirements for firms to earn either a narrow or wide moat rating: (1) the prospect of earning above-average returns on capital; and (2) some competitive edge that pre- vents these returns from quickly eroding. The assumptions we make about a firm’s moat determine the length of “eco- nomic outperformance” that we assume in the latter stages
enterprise value and the value of the firm if no future net in- vestment were to occur. Said differently, moat value identi- fies the value generated by the firm as a result of any future net new investment. Our Moat Trend Rating reflects our as- sessment of whether each firm’s competitive advantage is either getting stronger or weaker, since we think of moats as dynamic, rather than static.
At the heart of our valuation system is a detailed projection of a company’s future cash flows. The first stage of our three- stage discounted cash flow model can last from 5 to 10 years and contains numerous detailed assumptions about various financial and operating items. The second stage of our mod- el—where a firm’s return on new invested capital (RONIC) and earnings growth rate implicitly fade until the perpetuity year—can last anywhere from 0 years (for no-moat firms) to 20 years (for wide-moat companies). In our third stage, we assume the firm’s RONIC equals its weighted average cost of capital, and we calculate a continuing value using a standard Morningstar Research Methodology for Valuing Companies
Analyst conducts company and industry research:
Financial statement analysis Channel checks Trade-show visits Industry and company reports and journals Conference calls Management and site visits 3 3
3 3
3 3
Strength of competitive advantage is rated:
None, Narrow, or Wide Advantages that confer an economic moat:
High Switching Costs (Microsoft)
Cost advantage (Wal-Mart) Intangible assets (Johnson & Johnson) Network Effect (Mastercard) Efficient Scale (Lockheed Martin)
Analyst considers past financial results and focuses on competitive position and future prospects to forecast future cash flows.
Assumptions are entered into Morningstar’s proprietary discounted cash-flow model.
The analyst then eval- uates the range of potential intrinsic values for the company and assigns an Uncertainty Rating: Low, Medium, High, Very High, or Extreme.
The Uncertainty Rating determines the margin of safety required before we would rec- ommend the stock.
The higher the uncer- tainty, the wider the margin of safety.
Analyst uses a discounted cash-flow model to develop a Fair Value Estimate, which serves as the foundation for the Morningstar Rating for stocks.
The current stock price relative to Morningstar’s Fair Value Estimate, adjusted for uncertainty, determines the Morningstar Rating for stocks.
The Morningstar Rating for stocks is updated each evening after the market closes.
QQQQQ QQQQ QQQ QQ Q
Fundamental Analysis
Economic Moat
TMRating
Company Valuation
Fair Value Estimate
Uncertainty
Assessment
3 Uncertainty Methodology 3 Cost of Equity Methodology 3 Morningstar DCF Valuation Model 3 Stewardship Rating Methodology
* Please contact a sales representative for more information.
Instead, we rely on a system that measures the estimated volatility of a firm’s underlying future free cash flows, tak- ing into account fundamental factors such as the diversity of revenue sources and the firm’s fixed cost structure.
We also employ a number of other tools to augment our valu- ation process, including scenario analysis, where we assess the likelihood and performance of a business under different economic and firm-specific conditions. Our analysts typically model three to five scenarios for each company we cover, stress-testing the model and examining the distribution of resulting fair values.
The Morningstar Uncertainty Rating captures the range of these potential fair values, based on an assessment of a company’s future sales range, the firm’s operating and fi- nancial leverage, and any other contingent events that may impact the business. Our analysts use this range to assign an appropriate margin of safety—or the discount/premium
prices receive our highest rating of five stars, whereas firms trading above our consider-selling prices receive our lowest rating of one star.
Morningstar Margin of Safety and Star Rating Bands
Price/Fair Value 2.75
2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25
Low Medium High Very High*
* Occasionally a stock’s uncertainty will be too high for us to estimate, in which case we label it Extreme.
• 5 Star
• 4 Star
• 3 Star
• 2 Star
• 1 Star
Uncertainty Rating
— 125%
105% — 80% —
— 95%
— 135%
110% —
70% —
— 90%
— 155%
115% —
60% —
— 85%
— 175%
125% —
50% —
— 80%
New Morningstar Margin of Safety and Star Rating Bands as of August 18th, 2011
Our corporate Stewardship Rating represents our assess- ment of management's stewardship of shareholder capital, with particular emphasis on capital allocation decisions.
Analysts consider companies' investment strategy and
valuation, financial leverage, dividend and share buyback
policies, execution, compensation, related party transac-
tions, and accounting practices. Corporate governance
practices are only considered if they've had a demonstrated
impact on shareholder value. Analysts assign one of three
ratings: "Exemplary," "Standard," and "Poor." Analysts judge
stewardship from an equity holder's perspective. Ratings
are determined on an absolute basis. Most companies will
receive a Standard rating, and this is the default rating in
the absence of evidence that managers have made
exceptionally strong or poor capital allocation decisions.
coverage list.
3 Encapsulates our in-depth modeling and quantitative work in one letter grade.
3 Allows investors to rank companies by each of the four underlying com- ponents of our credit ratings, including both analyst-driven and quantitative measures.
3 Provides access to all the underlying forecasts that go into the rating, available through our insti- tutional service.
different lenses—qualitative and quantitative, as well as fundamental and market-driven. We therefore evaluate each company in four broad categories.
Business Risk
Business Risk captures the fundamental uncertainty around a firm’s business operations and the cash flow generated by those operations. Key components of the Business Risk rating include the Morningstar Economic Moat
™Rating and the Morningstar Uncertainty Rating.
Cash Flow Cushion
™Morningstar’s proprietary Cash Flow Cushion
™ratio is a fundamental indicator of a firm’s future financial health The measure reveals how many times a company’s internal cash generation plus total excess liquid cash will cover its debt-like contractual commitments over the next five years. The Cash Flow Cushion acts as a predictor of financial distress, bringing to light potential refinancing, operational, and liquidity risks inherent to the firm.
3 3 3 3 3
3
The higher the rating, the less likely we think the company is to default on these obligations.
The Morningstar Corporate Credit Rating builds on the modeling expertise of our securities research team. For each company, we publish:
Five years of detailed pro-forma financial statements Annual estimates of free cash flow
Annual forecasts of return on invested capital
Scenario analyses, including upside and downside cases Forecasts of leverage, coverage, and liquidity ratios for five years
Estimates of off balance sheet liabilities
These forecasts are key inputs into the Morningstar Corporate Credit Rating and are available to subscribers at select.morningstar.com.
Morningstar Research Methodology for Determining Corporate Credit Ratings
Competitive Analysis
Cash-Flow Forecasts
Scenario Analysis
Quantitative Checks
Rating Committee
A AA
BBB
C
D
