Heineken NV (HEINY, $49.85): “HEINY at High Heights”
By: Michael
Dennison, AIM Student at Marquette University
Disclosure: The AIM Equity Fund currently holds this
position. This article was written by myself, and it expresses my own opinions.
I am not receiving compensation for it and I have no business relationship with
any company whose stock is mentioned in this article.
Summary
• Heineken NV
(OTC: HEINY) engages in the manufacturing and distribution of alcoholic as
well as non-alcoholic beverages. Brands include: Heineken, Dos Equis, Tecate
and Strongbow. The company is the world’s “most global beer brand” with the
bulk of sales coming from the United States. Heineken is located in Amsterdam,
Netherlands.
• The stock has
been enjoying recent success after continued sales growth and hit a new 52 week
high of $53.17 last month.
• Although
domestic beer sales remain flat, growing imported beer sales remain a boon for
HEINY in the United States.
• Management plans
to stay active in M&A.
Key points: Recently HEINY has been on a tear (+32.68%
YTD). The firm experienced revenue growth over 5.7% in the first half of the
year over the same period in 2016. A 3.9% increase in volume in the first half
is the most important number here because that is that is the data point
indicative of demand. The reading was a 2.6% increase in the first half of
2016. Outside the U.S. people are drinking more beer than ever as the global
middle class continue to grow (+140 million people per year) and people begin
to turn toward premium brands.
The United States
represents a $104 billion beer market, the largest in the world. Domestic sales
have been slowing (+1.8%), but this contrasts to the story being told with
imported beer (+8.7%). This serves as a major boost to the world’s most global
beer brand as it continues to penetrate markets with its premium, cider and
non-alcoholic brands.
Management expects
to continue its aggressive M&A. After finishing the purchases of both Kirin
Holdings in Brazil and Punch Taverns in the United Kingdom, HEINY looks to be
poised for growth in Asian emerging markets. Vietnam, which represents the 11th
fastest growing market in the world for beer could be a key site for Heineken.
The Vietnamese government recently announced it would divest its majority
stakes in brewers Sabeco (40% market share in the country) and Habeco (18%).
Vietnam represents a key launching pad for Asian emerging markets for a number
of reasons. HEINY already maintains a 28% market share position in the
country’s $6.5 billion market. Putting a great emphasis Vietnam would also
create greater opportunity for HEINY to continue to penetrate the broader Asian
markets, where 60% of the world’s population lives.
What has the stock done lately?
After reaching a 52-week
high in September, reality caught up with the company. Fears over declining
consumption growth in the United States and possible tariffs being slapped on
the firm’s Mexican and South American brands lead to a 5% pullback in the stock
over the past month.
Past Year Performance: HEINY shares are
up 15.52% over the past year. As the company continually shows sales growth
overseas this trend is likely to continue. 2016 was a solid year for HEINY as
the company was encouraged by solid consumption growth. 2017 is now far
outpacing that of 2016 and gives claim to the stock’s recent performance
described above.
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| Source: FactSet |
My Takeaway
Despite the woes
being felt across the broader brewing industry and declining volume growth in
developed countries, HEINY continues to find new ways to compete. By
positioning itself as the world’s most global beer brand, the company has
diversified its market base and hedged against such developed world stagnation.
With Asian emerging markets such as Vietnam poised for growth and acquisition,
HEINY is perfectly set on continuing its platform. The company recently issued
$800 million in long-term debt for this very purpose. I would expect to see a
new 52 week high before 2017 is over.
 |
| Source: FactSet |
