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Anheuser-Busch Inbev (ABI) Com Stock NPV

Sell:€46.76 Buy:€47.30 Change: €0.14 (0.29%)
Market closed |  Prices as at close on 13 July 2020 | Switch to live prices |
Change: €0.14 (0.29%)
Market closed |  Prices as at close on 13 July 2020 | Switch to live prices |
Change: €0.14 (0.29%)
Market closed |  Prices as at close on 13 July 2020 | Switch to live prices |
The selling price currently displayed is higher than the buying price. This can occur temporarily for a variety of reasons; shortly before the market opens, after the market closes or because of extraordinary price volatility during the trading day.

HL comment (7 May 2020)

First quarter revenues fell 5.8% to $11.0bn, driven by a 9.3% decline in volumes. Operating profits fell 19.7% to $2.8bn, while underlying earnings per share fell 30.1% to $0.51.

As previously announced, the group has reduced its final dividend of 2019 by 50% to $0.50 per share.

AB InBev expects the pandemic's effect on second quarter results to be materially worse than in the first quarter. Given the current uncertainty full year guidance has been withdrawn.

The shares rose 2.5% in early trading.

View the latest AB InBev share price and how to deal

Our View

The closure of pubs and restaurants around the world has cut off a major source of sales for brewers like AB InBev. This would be a problem at any time but it's especially worrying given the group's sizeable debt pile, courtesy of the 2016 SABMiller acquisition.

Efforts to bring debt under control have recently seen a minority stake in Budweiser APAC, part of the group's Asian operation, sold for $5.8bn. That follows the $11bn sale of the Australian business, due to complete later this this year. Management has now reduced net debt to 4x operating cash profits, but know it really needs to be half that.

In our opinion, the COVID-19 pandemic is going to make that a nigh impossible task in the short run. Frankly, we'll be impressed if the group can just stop the debt load growing any further. Once conditions return to normal AB InBev should be able to keep paying the debt down, but this looks like it might come at the cost of shareholder returns. The dividend has already been halved, and we suspect this may not be a temporary adjustment.

Still, if you can see past the debt shaped millstone hanging around the group's neck, there are bright spots.

Footholds in less-developed markets from Latin America to Sub-Saharan Africa mean there's scope for huge volume growth in the years ahead. That's despite AB Inbev already brewing one in four pints globally, and a growing middle class in those economies opens the door to price rises too.

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. However, recent currency and commodity headwinds have increased costs and hurt margins.

AB Inbev has an enviable portfolio of brands, and if it can control its debt it should be fine in the long term. Over time we think the group should be able to rebuild the dividend, but given the debt position we'd be surprised by a quick bounce back.

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First Quarter Results

While AB InBev saw volumes decline across all markets, Asia Pacific was by far the hardest hit. Volumes in the region fell 42.3% in the quarter, led by a 46.5% decline in China where the coronavirus outbreak affected sales from late January.

Revenue per hectolitre improved by 3.9%, driven by ongoing premiumisation. However, the group's flagship Global Brands still saw revenues fall by 11% as brands like Budweiser and Corona were particularly hard hit by the decline in China.

While operating costs improved slightly year-on-year that was not enough to offset the effect of lower revenues.

The group has drawn down its $9bn Revolving Credit Facility, and completed bond issuances worth EUR4.5bn and $6bn respectively. The group expects the $11bn disposal of Carlton & United Breweries to complete in the second quarter of 2020.

Find out more about AB InBev shares including how to invest

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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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