Company Reports

Heineken reported strong performance in its first-quarter trading update. Organic growth in beer volume was 4.7% across all regions and organic revenue was up by 9.4%. The volume was boosted by calendar and one-off effects. Pricing also played a significant role with a 6.0% increase in price/mix on a consistent geographical basis. Results were above our estimates and company-compiled consensus. However, shares remained stable at the time of writing. Despite the solid results, management maintained its outlook for 2024, with operating profit growth in low- to high single digits. This remains broadly in line with our estimates and therefore, we maintain our EUR 100 fair value estimate.

After a period of industry consolidation, we think the future of the brewing industry lies in premiumization at scale, nonalcoholic beer, and portfolio proliferation. We believe Heineken has strategies to deliver against all of these themes. The company's approach to value creation is its "green diamond," which focuses on four metrics: growth, profitability, capital efficiency, and sustainability and responsibility, and its five strategic priorities under the "EverGreen" umbrella are: shape the future of beer and beyond, digital, productivity, sustainability, and people.

After a period of industry consolidation, we think the future of the brewing industry lies in premiumization at scale, nonalcoholic beer, and portfolio proliferation. We believe Heineken has strategies to deliver against all of these themes. The company's approach to value creation is its "green diamond," which focuses on four metrics: growth, profitability, capital efficiency, and sustainability and responsibility, and its five strategic priorities under the "EverGreen" umbrella are: shape the future of beer and beyond, digital, productivity, sustainability, and people.

Heineken reported a reasonable final quarter of 2023, with revenue and operating profit above our forecasts, although volume was weaker even than our recently lowered forecasts. Guidance for next year appears to be cautious, and we believe this is the reason for the market's negative reaction to the report. After the pullback, there is now 10% upside to our valuation, and we believe near-term risk is more than priced into the stock. We retain our EUR 96 fair value estimate and our narrow moat rating.

For the second consecutive quarter, Heineken reported that consumers were balking at the steep price increases that it has implemented over the last 18 months. It now seems unlikely that the brewer will achieve our volume estimates this year, so we have modestly lowered our forecasts in some regions. However, the price increases pushed through this year mean that revenue is still likely to grow modestly, in line with our forecasts, and management has not changed its full-year outlook. We retain our EUR 96 fair value estimate and narrow moat rating. The market shrugged off the report; it seems the stock was already pricing in the slowdown in growth. The shares now trade at a 10% discount to our fair value estimate as of the Oct. 25 close.

Heineken's second-quarter results gave one of the first indications that consumers are beginning to buckle under the pressure of price increases, with volume and revenue growth moderately below our forecasts. Cost controls and some benefits in below-the-line items meant that operating profit and earnings per share were in line with our estimates, however, and we are retaining our EUR 96 per share fair value estimate and our narrow moat rating. Heineken's weakness was primarily driven by markets such as Vietnam, in which it has significant share, so while this is not necessarily a precursor to a disappointing second quarter across the consumer staples sector, it is a reminder that consumers cannot continue indefinitely to absorb the significant cumulative price increases they have faced for several quarters. With the Producer Price Index now in retreat in many countries, we expect the inflation being passed through to consumers will soon peak, but sector market valuations are pricing in volume rebounds in the second half of the year that may not come to fruition.

Heineken reported another strong performance in its first-quarter trading update. Organic beer volume and revenue increased 3.0% and 8.9%, respectively, a whisker below our forecasts. We have lowered our full-year volume forecasts for Africa and Asia, but this has no impact on our EUR 96 fair value estimate. With the shares trading around 7% above this as of early trading on April 19, we regard Heineken as being fully priced, but we recognize that with volume fairly robust in the face of large price increases, the company is likely to prove a defensive investment in the event of weakening consumer sentiment.

After a period of industry consolidation, we think the future of the brewing industry lies in premiumisation at scale, nonalcoholic beer, and portfolio proliferation. We believe Heineken has strategies to deliver against all of these themes. The company's approach to value creation is its "green diamond," which focuses on four metrics: growth, profitability, capital efficiency, and sustainability and responsibility, and its five strategic priorities under the "EverGreen" umbrella are: shape the future of beer and beyond, digital, productivity, sustainability, and people.

Heineken reported another impressive financial performance in 2022, with fourth-quarter results again marginally beating our expectations. So far, the fourth-quarter results of large-cap European consumer staples companies have been fairly strong, and Heineken continued that trend as volume in Asia roared back. This performance was assisted by the reallocation of cost savings to brand investments, which we expect to continue as Heineken drives growth in its premium and non-alcoholic brands, and may trigger more competitive spending by other brewers. As these brands generate above average margins, we do not expect any impact to profitability, however, and retain our narrow moat rating and EUR 90 fair value estimate. Heineken appears fairly valued at current levels, but could prove to be fairly defensive if economic conditions deteriorate.

Heineken's "green diamond" strategy, its new approach to long-term value creation, focuses on four metrics: growth, profitability, capital efficiency, and sustainability and responsibility.

Heineken reported another impressive set of sales figures in the third quarter that show the company continues to pass through cost inflation to consumers. We are reiterating our narrow moat rating and EUR 90/$46 fair value estimate. With the stock trading at 16 times 2023 earnings, we expect Heineken to remain fairly defensive during this period of economic turbulence, but we think absolute upside is limited.

Heineken's "green diamond" strategy, its new approach to long-term value creation, focuses on four metrics: growth, profitability, capital efficiency, and sustainability and responsibility.

Heineken reported impressive first-half results, with volume growth above our expectations, and we are raising our fair value estimate to EUR 90 per share from EUR 84. Although we expect growth tailwinds to fade in the second half of the year, we have raised our near-term forecasts slightly on the back of Heineken’s very strong recovery from the COVID-19 lockdowns in many of its markets. Although we continue to like Heineken’s competitive positioning, the stock looks fully priced to us at 18 times 2023 earnings as at the close of business on Aug. 1.

Heineken's "green diamond" strategy, its new approach to long-term value creation, focuses on four metrics: growth, profitability, capital efficiency, and sustainability and responsibility.

Heineken reported strong first-quarter sales figures, which bodes well for its performance as on-trade reopens, and as the company is forced to raise prices to offset commodity cost inflation. We are reiterating our fair value estimate, but there could be upside to our estimates for the rest of the year if the price increases stick.

We are again lowering our fair value estimate for Carlsberg to DKK 910 from DKK 945 in light of the decision to exit Russia, but we are leaving other valuations across our European fast-moving consumer goods, or FMCG, coverage intact. Several companies have announced, over the last 24 hours, various exit strategies to dispose of their Russian assets. We expect this to destroy value for those companies that hitherto operated in Russia, but because it is a relatively low-margin market, write-downs in most cases are likely be limited to low single digits as a percentage of market capitalization.

We are lowering our net revenue and gross margin estimates for the European beverage companies under our coverage to reflect the expected impact of the conflict in Ukraine. The impact on our valuations is minimal, however, and the only fair value estimate we are lowering is that of Carlsberg, from DKK 965 to DKK 945. Following the impositions of sanctions, most of the beverage manufacturers have temporarily ceased exporting products to Russia, and although this has made headlines, exports into Russia represent a small segment of the market.

Narrow-moat Heineken reported strong full year 2021 results, with volume and net revenue a touch above our estimates, as markets rebounded strongly from COVID-19. The story of these results is the high level of price increases that were passed through in the second half of last year and will probably be required in the first half of 2022. With energy costs going up, it is possible that consumers will reduce consumption in the face of further price increases. We have slightly lowered our revenue estimate for 2022, and this offsets the upside to the 2021 performance, and we retain our EUR 84 fair value estimate. We believe Heineken is modestly overvalued at current levels, but many developed market consumer staples large caps appear fully priced. Within the brewing group, we prefer AB InBev on valuation, while we believe the distillers and prestige cosmetics manufacturers will weather the inflation storm better than the brewers.

Heineken confirmed it is to acquire South Africa's Distell in a series of transactions that will give it greater control over some of its assets in Africa. Heineken will pay EUR 1.3 billion in cash for the remaining equity of Distell and Namibia Breweries, or NBL, it does not already own, and will contribute its existing export and South African assets into a new Southern Africa drinks company, of which it will own at least 65%. In our opinion, Heineken has paid a reasonable price, and the deal is neutral to our EUR 84 per-share valuation. Strategically, we see some advantages, and we think there is modest upside to Heineken's structural organic growth rate and margin expansion opportunities.

Heineken’s third quarter beer volume was weak, and the near term may continue to be volatile. We attribute the weakness to delays in some markets in opening up following the closure of the on trade during the COVID-19 pandemic, and we have delayed the volume recovery in Heineken’s Asia region to next year. With the stock having been priced for strong growth well into the future, we would not be surprised if there is a negative reaction to the news. Nevertheless, we do not believe this disappointing data has any material impact on Heineken’s long-term growth opportunities or competitive strength. The changes to our estimates have no material impact on our valuation and we are reiterating our EUR 84 fair value estimate and narrow moat rating.