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Stellar Quarter for Anheuser-Busch, Though Risk Remains

The wide-moat brewing company had an encouraging performance in the third quarter. We retain our fair value estimate.

Anheuser-Busch InBev BUD, or AB InBev, the world's largest brewer, blew away S&P Capital IQ consensus estimates in the third quarter, with a remarkably robust volume. There was also modest upside to our above-consensus estimates, with pleasing volume growth in both Brazil and the U.S., the firm's two largest markets. While this is clearly a big step in the right direction, we suspect that to a degree, shipments were propped up by subsidies to consumers and channel restocking, and we expect market volatility to remain for the next few quarters. The suspension of the interim dividend supports this view. Nevertheless, this was a strong quarter from a frim that has offered precious little good news in the last few years. We have made minor adjustments to our assumptions, mainly to reflect the more difficult comparable AB InBev will now face in 2021, and retain our USD 96 fair value estimate for the ADRs, as well as our wide moat rating.

Although these are far from normal times, AB InBev performed in line with our assumptions for its normalised environment in the third quarter; an encouraging performance. Third-quarter organic revenue grew 4% year over year, comfortably above our forecast of essentially flat revenue. The upside was driven by volume, which grew 1.9% organically on a consolidated basis, with upside in both North and South America. All other regions performed in line with our forecasts. Crucially, the key markets we think are important to a rerating of AB InBev's market valuation performed well. In the U.S., 1.4% volume growth implies 25 basis points of volume share gain, in spite of a respectable 3.5% positive price/mix, AB InBev's best performance in the U.S. for some time. The share gains across the portfolio were impressive, as AB InBev outperformed across multiple beer segments, as well as in seltzer. Share stability in the U.S. could be a catalyst for the stock, but we caution that the rebound of the on-trade could pose a risk to AB InBev's share.

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