Heineken: Another Strong Quarter of Price/Mix

Heineken HEINY 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.

The only material variance from our forecasts in the first quarter came in emerging markets, which were volatile. Net revenue in Nigeria declined in the low teens due to money supply issues, and revenue declined in the midsingle digits in South Africa due to an operational disruption at a brewery. The first-quarter organic volume decline in the Africa, Middle East, and Eastern Europe region of 8.3% was disappointing, but we expect volume to recover as these issues are worked through. Of slightly more concern was the macroeconomic weakness in Vietnam, where revenue declined in the low 20s, exacerbated by Heineken’s inventory build late last year and early this year, which may take a few quarters to unwind. However, the economies of Southeast Asian markets may be boosted by the opening up of Chinese tourism, and although we have slightly lowered our 2023 regional volume estimate (we now forecast a full-year volume decline of 1.1%, down from 0.5% growth previously), we still expect Vietnam in particular to be a long-term growth driver.

No margin data was provided in this trading update, but with price/mix on a constant geographic basis, excluding Russia, of 12.1% in the first quarter, and with Heineken brand volume outstripping consolidated volume, we believe the company will have again passed through its input cost inflation.