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AB InBev - rising prices help push profits higher

First half revenue rose 11.5% to $28bn, driven by ongoing premiumisation and expansion of the beer category across most key markets...

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First half revenue rose 11.5% to $28bn, driven by ongoing premiumisation and expansion of the beer category across most key markets. Volumes grew 3.1%, with revenue per hectolitre up 7.9%. Underlying cash profit (EBITDA) rose 7.5% to $9.6bn.

Cash profit is expected to grow in-line with medium-term outlook of between 4-8%, with revenue at a faster pace down to a combination of volume and price.

The shares fell 4.3% following the announcement.

View the latest AB InBev share price and how to deal

Our View

Despite increasing commodity and supply chain costs, AB InBev is continuing to push on with the recovery. We're not there yet, and it'll likely take another couple of years for profits to fully recover. But sales have improved with easing restrictions and the group's managing to drive volumes higher whilst pushing prices up with more premium options.

And because AB InBev has such high fixed costs, as sales increase profits should come along for the ride. (A brewery is a lot more efficient when it's working at full capacity). Of course, the opposite's also true, which is why it's been a tough couple of years.

In developed markets a trend towards more premium products presents the opportunity to boost both margins and revenues. That's played into the group's hands as strong brands like Michelob Ultra, Stella and Corona have reaped the rewards of the shift.

Footholds in less-developed markets from Latin America to Sub-Saharan Africa mean there's scope for huge volume growth in the years ahead. We're already starting to see this in action, and it looks like premiumisation is a trend that's making its way into these regions too. Growth in Mexico, Brazil and Columbia was driven by more expensive brands.

Our biggest bugbear is the balance sheet, which is carrying too much debt. Net debt's almost 4 times cash profit, a long way from the company's target of 2 times. That figure will come down on its own if profit recovers, but the absolute debt level could do with more work.

There's no immediate concern, over 70% of the debt doesn't need repaying for 5 years or more and interest payments are very manageable. Nonetheless, we're keen ABI keeps its foot on the pedal where debt reduction's concerned.

AB InBev's enviable portfolio of brands and huge global footprint means revenues should be robust in most conditions. Its long-term growth opportunities shouldn't be dismissed either. But it's hard to get too excited when reducing debt, rather than reinvesting or returning to shareholders, likely to be a priority for years to come.

AB InBev key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Half Year Results (revenue growth organic)

Revenue grew by 2.1% in North America, to $8.2bn as volumes fell 3.4%. In the US, a resilient beer industry helped revenue grow 2.4%. Underlying cash profit (EBITDA) fell 1.1% to $3.0bn.

In the Middle Americas revenue rose 15.9% to $6.7bn, with total volumes up 5.9%. Mexico was a strong performer, with revenue growth in the mid-teens. Underlying cash profit rose 10.1% to $3.1bn.

In South America, total volumes rose 6.6%. Revenue rose 28.6% to $5.3bn. Columbia delivered revenue growth in the mid-twenties. Premium brands performed well across from Columbia and Brazil. Underlying cash profit for the region rose 25.1% to $1.7bn.

In the Europe, Middle East and Africa volumes grew 5.9%. Revenue was 15.1% higher at $3.9bn and underlying cash profit grew 20.5% to $1.2bn. Europe grew in the low-teens and South Africa double-digits, both led by premium brands.

The Asia Pacific region saw volumes fall 1.5%, but revenue grew 2.6% to $3.5bn. Underlying cash profits rose 0.7% to $1.2bn. Restrictions in China impacted key channels and volumes fell 5.5%.

Free cash flow for the period came in at $243m, Net debt fell from $76.2bn to $75.9bn, or 3.9 times underlying cash profit - ahead of the group's optimal range of 2 times.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt-Britzman
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 28th July 2022