Recovery Begins for AB InBev in Q4; FVE Lowered
We are lowering our fair value estimate of AB InBev to $90 per ADR from $96 to account for the likelihood of extended margin pressure in 2021.
All things considered, Anheuser-Busch InBev's (BUD), or AB InBev's, fourth-quarter results were decent, with volume and revenue marginally above our forecasts amid strong rebounds in some key markets. Margin guidance for next year appears understandably cautious, in our view, and we attribute the sell-off in the stock following the results release, to disappointment over the lack of margin recovery. We are lowering our fair value estimate of AB InBev to $90 per ADR from $96 to account for the likelihood of extended margin pressure in 2021, but we continue to believe the long-term cash flows of the business are being materially undervalued by the market, and we see potential for margin upside this year if coronavirus vaccines are successfully rolled out and the on-trade returns to normal before year-end.
Revenue grew by 4.5% in the fourth quarter and by 3.7% in the full year, in spite of the lockdown restrictions that were in place in several markets. Volume growth turned positive in the fourth quarter, up by 1.6%, meaning full-year volume fell by 5.7%. There are a few positive points to note in the growth rates of some of its largest markets. First, Brazil's beer volume was up by almost 12% in the fourth quarter, supported by the "corona voucher" scheme, and management stated that growth so far this year was around 10%. This is better than our initial 8% growth estimate for the first quarter, and comes before the comparisons become much easier later in the year. Second, AB InBev took share in Mexico, where it grew fourth-quarter revenue in the high-single-digit range, as it expanded its distribution in OXXO, the country's largest convenience store chain.
Margins, however, contracted again in the fourth quarter. The 39.7% EBITDA margin implied a 261-basis-point contraction, a sequential improvement from the 432-basis-point decline in the first nine months of the year, as the return of volume growth boosted profitability.
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Clynton Wratten does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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