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Australian beer disposal raises prospect of a revival of the Budweiser APAC IPO

  • Anheuser-Busch InBev's recent disposal of its Australian business to Asahi for US$11.3bn is a positive move

  • The disposal makes Budweiser a purely emerging markets story and cuts the debt overhang for the parent company

  • The listing would be a game-changer for Asian brewers such as Thai Beverage (Buy), Sabeco and San Miguel

Australian beer disposal raises prospect of a revival of the Budweiser APAC IPO
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
1 August 2019
Published by

In 1989, the former Australian cricketer David Boon downed 52 cans of beer (20 litres of beer) on a flight from Sydney to London. Australian beer consumption has fallen since those heady days. Beer consumption per capita has halved from 500 bottles per head in 1975 to 224 in 2017. The Australian beer business is far less effervescent than in its heyday.

Hence, Anheuser-Busch InBev's (ABI BB) recent disposal of its Australian business (Carlton & United Breweries) to Asahi for US$11.3bn is a positive move. It comes close on the heels of last month's postponement of the US$9.8bn IPO of ABI BB's Asian business (styled Budweiser APAC). Investors balked at the elevated Budweiser APAC valuation of the issue. 

The disposal of the Australian business at EV/EBITDA is positive on two counts. First, it makes Budweiser a purely emerging markets story. Budweiser APAC earnings would be driven by China, India, South Korea, Vietnam and other markets where business consumption is rising. Previously, there was concern that a fifth of Budweiser APAC's revenue was generated by Australia and Japan, where beer demand is muted. In both these mature markets, beer consumption is stagnant as the population is aging. Australian and Japanese youth are becoming more averse to drinking due to health issues. The scope for premiumisation (switching to higher value beers) is limited in Australia and Japan. Carlton & United Breweries' (CUB) beer brands are highly premiumised in any case.

Second, it cuts the debt overhang for the parent. Investors were concerned that the US$100bn of net debt at the parent level would restrict Budweiser APAC's expansion plans. The US$11.3bn CUB sale improves ABI BB's debt metrics. Its net debt to EBITDA could fall from 4.7x to 4.2x with the deal.

The listing is a game-changer for Asian brewers such as Thai Beverage (THBEV SP, Buy), Sabeco (SAB VN), and San Miguel (SMC PM). The original valuation suggests that THBEV SP is 15-23% undervalued. SAB VN is trading at 21x EV/EBITDA, according to Bloomberg consensus. Vietnam's growth prospects are stronger than any other Asian market, suggesting that SAB VN deserves a premium to other Asian markets. SMC PM could also receive a boost. Vietnam's thirsty beer-drinkers are projected to drive 6% yoy growth in beer consumption per capita in 2018-23, according to Passport.

ABI BB plans to acquire Asian brewers. ABI BB's CEO Carlos Brito has indicated that the listing is designed to pave way for Asian acquisitions. This strategy has worked in other emerging markets. ABI BB's Brazilian listing helped persuade Latin American brewers to sell to ABI BB over the past 15 years. 

THBEV SP’s and SMC PM’s brewery could still be an acquisition target for ABI BB if the listing revives. THBEV SP's beer brands are highly rated and exposed to Thailand and Vietnam. Crucially, THBEV SP is trading at a discount to the original IPO valuation. Our unchanged target price of SGD1.10 implies 32% upside for THBEV SP. There is lots of fizz left in the stock, despite its 34% rise YTD.