Anheuser-Busch InBev SA (ANHJ) – Volume gains spur revenue growth in FY’22

What shaped the past week?

Global: Throughout the week, major stock indexes in the Asia-Pacific region had mixed performances as investors reacted to various economic and geopolitical developments. Japan’s consumer sentiment improved, Tesla announced a new battery plant in Shanghai, and the US conducted military drills in the South China Sea. Inflation data from China and South Korea’s decision to maintain its key interest rate were also in focus. Berkshire Hathaway CEO Warren Buffet expressed interest in increasing his stake in major Japanese companies. Traders anticipated the US inflation report, and the Federal Reserve’s minutes suggested a potential “mild recession” in 2023.

European stock markets showed positive performances throughout the week, with major indexes closing higher on Tuesday and Wednesday. The CAC 40 reached an all-time high, and the International Monetary Fund predicted that the eurozone economy would grow, while the UK’s economy would contract. Investors also gained confidence as the Sentix reported a rise in investor confidence. On Thursday, markets closed higher once again as investors analyzed the latest US economic data on inflation and producer prices, and Bank of England’s Chief Economist Huw Pill projected a decrease in inflation and a GDP fall in the first quarter of 2023.

The week in review saw the major US stock indexes experiencing mixed performances, as investors reacted to various economic and corporate news. Investors eagerly awaited the latest data releases that could guide the Federal Reserve’s monetary policy. Some highlights included chipmaker stocks rallying, while Tesla Inc. experienced a fall in stock prices after announcing price cuts. Additionally, Ford unveiled its $1.3 billion-worth plan to accelerate electric vehicle production, while Boeing’s deliveries increased by 27% in the first quarter of 2023. The Federal Reserve released its latest minutes, indicating a possibility of a “mild recession” in 2023, and some airline companies also experienced a decline in their stock value as they awaited their financial reports. However, the week ended on a positive note, with the United States stock markets closing higher following the release of better-than-expected economic data.

Domestic Economy: Since the onset of the COVID-19 pandemic, capital importation into Nigeria has declined significantly. In 2022, capital flows plummeted by 20% y/y to $5.3 billion, the worst outcome since 2016. Declines were observed across all segments; foreign direct investment ($0.5 billion; -33% y/y), foreign portfolio investment ($2.44 billion; -28% y/y), and other investments ($2.42 billion; -8% y/y). Foreign portfolio investors sold off their stakes in the equity ($56 million: -73% y/y) and money markets ($1.4 billion; -46% y/y) while purchasing more bond instruments ($0.98 billion; +74% y/y). We attribute the sustained decline in capital flows to pandemic after-effects, FX illiquidity, and prevailing risk-off sentiments towards emerging and frontier markets. This trend could result in lower FX flows into the reserves and reinforce the need for further downward adjustments in the Naira.

Equities:  Nigerian equities have had a rough start to Q2’23. The All-Share Index (ASI) declined by 2.06% w/w, resulting in a MTD performance of -4.29%. Banking stocks also suffered a significant decline, with the sector experiencing a -1.40% w/w drop, making it the worst performer MTD. Similarly, the Industrial Goods space saw moderate sell-side pressure, with the sector returning -0.40% w/w. On the other hand, Consumer Goods also witnessed minor losses, declining by -0.10% w/w. Lastly, the Oil and Gas space closed flat w/w.

Fixed Income: Constrained liquidity levels remained a drag on activity in the secondary market this week. Starting in the bonds space, yields closed flat on the week, amid pockets of mixed activity during the week. Conversely, it was a positive trading week for the NTB space, as investors digested this week’s NTB auction results. At the NTB auction, the CBN offered ₦56.66 billion across the 91DTM and 182DTM at stop rates at 6.00% and 8.00% respectively. As such, investors reacted positively to this and as such yields eased 38bps w/w as investors were keen on tenors at the long-end of the NTB curve.

Currency: The Naira depreciated N0.16 w/w at the I&E FX Window to close the week at ₦464.00.

What will shape markets in the coming week?

Equity market: We foresee another mixed week of trading in the equities space, as investors await the release of Q1’23 earnings.

Fixed Income: We expect the market to trade in a positive manner on Monday, as investors await the latest batch of economic data out for the country. Meanwhile, system liquidity will dictate activity in the NTB space.

Anheuser-Busch InBev SA (ANHJ) – Volume gains spur revenue growth in FY’22 In the full year 2022 earnings results released by the brewery giant, AB InBev announced a revenue figure of $57.8 billion, a meaningful 6% y/y rise from the corresponding 2021 figure and 10% above the pre-pandemic revenue level. Sales were reportedly driven by stronger pricing and increased volumes in majority markets including Middle America, South America and EMEA. Apart from the positive impact of trending premiumization on volumes, the company’s continued innovative strides along newer brands and taste experiences also supported growth. More so, its improved efficiency in restocking retailers and other sales points through its digitized platform also reinforced volume strength in the period. Accordingly, volumes surpassed pre-pandemic levels by 6%. In major markets, AB InBev’s stronger pricing implemented during the year should hold fast and steer revenue upwards. Additionally, the volume growth momentum from the FY’22 period is expected to carry into the new year, especially across regions like North and South America, where premiumization continues to drive demand particularly on the back of continued investments in innovation. More so, while volumes in China were slightly weaker in the recent Q4 period due to Covid restrictions, we expect the growth in the BEES digital platform to support volumes in China and Brazil. That being the case, this would augment the positive impact of pricing on revenue and supports our $61.2 billion projection for FY’23.

Over the year 2022 – and especially in the first half of the year – input costs (including energy costs) for brewers grew significantly, influencing cost of sales across board; AB InBev’s cost of sales per hectoliter rose by 16% y/y. Driven by this, and despite the company’s cost efficiency and margin superiority, gross margin declined by 4ppts y/y, with gross profit printing at $31.5 billion.

With its commitment to more organic growth and to slow down acquisitions, the company has maintained moderate Capex; it has also focused on its deleveraging strategy to lessen debt and targets a net debt-to-EBITDA of 2x. Between 9M’22 and FY’22, this metric moved from 4.1x to 3.51x. We believe this progress is significant and has been helped by its strong cashflow from the period (although cash from operations declined by 10% y/y to 13.3 billion), supporting its bond buy-back activities. Additionally, given that its debt liabilities are fixed-rate bonds, and are sheltered from rising interest rates, finance costs have remained stable.

Overall, driven by growth across Revenue lines and an 18% reduction in tax expense, AB InBev’s PBT and PAT came in 3% and 24% higher y/y to $9.7 billion and $7.6 billion, albeit significantly slower than the low-base-induced growth from FY’21. Going by this profit figure for the year, the company declared dividend of €0.75 per share, 50% higher than the €0.50 declared for FY’21. It also represents a payout of 25% and a yield of 1.2%. In FY’23, our expectations for revenue and cost growth inform our projection of 34% for EBITTDA margin and $8.1 billion bottom-line.

Strong innovation push remains a plus

Despite cost implications, the company’s innovative strength is expected to drive growth in FY’23 and beyond as it is able to quickly adapt to changes in consumer preferences; recently, AB InBev debuted a limited-edition drink, Beck’s Autonomous which is an AI-innovated “recipe to ads” beer. While the opportunities from this stream seem extensive, we believe that the artificial scarcity that the limited stock currently provides, may not fully reflect the true picture of consumers’ acceptance. That being said, AB InBev’s full integration of a digitized platform is also expected to support growth in line with flexible consumer tastes.

Considering the company’s current trajectory, our assumptions and outlook for the firm, we estimate a one-year target price of $74.79 per share which translates to a value of ZAR 1,385.36 per share (using the current one year forward rate of ZAR 18.5226/$). The stock trades at value of ZAR 1,217.76 per share, which is a 14% discount to our valuation. Thus, we place a HOLD recommendation on the stock.