By The Sizemore Letter
From the news, you would think that Brazilians had stopped drinking beer. Ambev (ABV), the Brazilian brewing giant, is expected to see mildly negative volume growth this year, as slower economic growth and rising inflation appear to have dampened the party spirits.
Ambev—which trades as a separate ADR despite being controlled by global brewer Anheuser-Busch InBev (BUD)—has followed the Brazilian market lower this year. In dollar terms, Ambev is down about 17% from its February high vs. a loss of 15% on the popular iShares MSCI Brazil ETF (EWZ).
So, after its recent spill, is Ambev a buy?
At current prices, Ambev is not a compelling buy. True enough, the brewer is one of the purest plays on the rise of Latin American living standards. This is a durable macro trend and, in my view, one of the most attractive investment themes of the next decade. But trading at 23 times expected 2013 earnings and yielding only 2.3% in dividends, it can’t be considered a screaming bargain.
What about its behemoth international partner, Anheuser-Busch InBev?
BUD is the largest brewer in the world and one of the most diversified. It counts over 200 beers in its product portfolio, claims 6 of the 10 most valuable beer brands in the world, and it sells over half of its beer by volume in emerging markets.
BUD isn’t “cheap” trading at 20 times earnings, but for a high-quality, defensive dividend grower with unparalleled international reach, I wouldn’t consider it expensive.
Earlier this week, I wrote about my favorite way to invest in emerging markets: Western-domiciled multinationals with an oversized presence in the developing world, or what I like to call “Emerging Markets Lite.” Anheuser-Busch InBev would certainly make the cut here.
But as attractive as BUD is, it’s not my favorite. That distinction belongs to Dutch-based megabrewer Heineken (HEINY).
Heineken depends on Western Europe for a larger chunk of its revenues than Anheuser-Busch InBev, which has muted investor enthusiasm. But Heineken gets about half of its revenues and more than 60% of its sales by volume from emerging-market countries, and it has excellent positioning in Africa, the last real investing frontier of any size.
Africa already accounts for 22% of Heineken’s sales by volume, and this percentage will only increase with time as African consumer trade-up from home brews to branded beer.
Heineken trades for a reasonable 17 times earnings and pays a modest 1.8% dividend.
Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he was long HEINY. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.” This article first appeared on InvestorPlace.
This article first appeared on Sizemore Insights as Want Emerging Markets Exposure? Go for Global Beer
