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Budweiser's IPO pricing is too frothy

  • Anheuser-Busch InBev plans to raise US$9.8bn through a listing of its Asian business

  • The issue will outstrip Uber as the largest IPO in 2019

  • Investors are likely to find the elevated valuation of this major beer IPO hard to swallow

Budweiser's IPO pricing is too frothy
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
7 July 2019
Published by

Anheuser-Busch InBev (ABI BB), the world's largest beer producer, plans to raise US$9.8 billion through a listing of its Asian business. The issue will outstrip Uber as the largest IPO in 2019. But investors are likely to find the elevated valuation of this major beer IPO hard to swallow. 

We believe investors should either subscribe to the bottom end of the range or avoid the issue.

The Asian business is named Budweiser Brewery Company APAC (1876 HK) and is expected to list in Hong Kong on 19 July. Pricing would be on 11 July.


Table 1: Budweiser APAC IPO details
IPO Size (US$)
9,800,000,000
No of shares sold
1,630,000,000
Share price (HK$)40-47
Books open2 July 2019
Pricing11 July 2019
Trading19 July 2019
Source: Bloomberg

Table 2: Valuation range







HK$/shareMarket CapEVPEEV/EBITDA
Top47
64
64
45.622.1
Mid43.559.56042.019.8
Bottom40545438.518.3
Source: Tellimer, HKSE


The Budweiser APAC IPO has two purposes for the Belgium-headquartered beer giant. First, it will help reduce ABI BB's US$100bn of net debt. Second, it should help ABI BB acquire Asian brewers. Potential targets include dominant and branded players such as Thai Beverage (Buy) and San Miguel. (Not Rated).

The Asian subsidiary sells over 50 of the group's brands including Budweiser and Stella Artois, in Asia-Pacific markets such as China, Australia, South Korea and Vietnam. It is the largest brewery in Asia by sales. 

The IPO priced at a sharp premium to its peers in the Asia-Pacific region, but we think this premium is unjustified. At the top of the range, it is trading at a 20% premium to the median FY19 EV/EBITDA multiple for APAC brewers. At 45.6x FY19 PE, it is almost double the media PE multiple for the peers.

Table 3: Asia Pacific Brewers: Comparative valuation (US$mn)
TickerNameP/E FY2EV/EBITDA FY2P/Sales TTMP/FCF TTMP/BookP/Tang BookEV/EBITDA TTMMarket CapEnterprise Value

   

 



 

 




 



Median

25.4

13.8

2.2

30.3

3.8

10.4

18.4



1876 HK Equity

Budweiser AsiaPac

45.6

22.1

7.6

32

8.9

14.3

22.1

64,184

64,248

291 HK Equity

China Resources Beer

37.1

17.8

3.3

45.7

5.7

10.3

26.5

121,007

119,774

2502 JP Equity

Asahi

13.5

9.8

1.0

14.9

1.9

 N/A

10.2

166,773

239,742

THBEV SP Equity

Thai Beverage

18.1

16.8

1.9

22.7

3.9

N/A

20.0

124,466

182,816

SMC PM Equity

San Miguel

15.1

6.7

0.4

12.4

1.3

7.9

8.3

63,173

197,517

291 HK Equity

China Resources

37.1

17.8

3.4

45.7

5.7

10.3

26.6

121,007

119,774

168 HK Equity

Tsingtao

30.7

14.5

2.2

22.1

3.1

3.9

N/A

70,048

53,248

CAB MK Equity

Carlsberg Malaysia

23.9

16.8

3.6

28.8

37.2

37.8

20.8

14,658

14,665

2502 JT Equity

Asahi

13.5

9.8

1.0

14.9

1.9

 N/A

10.2

166,773

239,742

2503 JT Equity

Kirin

14.7

10.6

1.0

21.2

2.4

4.5

8.7

154,355

196,772

UBBL IN Equity

United Breweries

46.3

24.2

5.6

116.6

11.5

11.6

32.1

41,514

41,617

ABI BB Equity

ABInBev

18.8

12.3

3.3

19.4

2.8

 N/A

13.4

1,456,991

2,319,566

Source: Bloomberg, Tellimer estimates. We have annualised Budweiser AsiaPac's 1Q19 earnings to arrive at the FY19 forecast.


1. China is the most dynamic market for Budweiser AsiaPac, with beer revenue having doubled in the past decade. The Chinese beer companies China Resources Beer and Tsingtao are trading at over 24x EV/EBITDA, which is a premium to the peer group.

However, beer is under threat in China. Per capital consumption has fallen since 2015, as discerning consumers prefer wine and baijiu, a local spirit. Craft beer, which has boomed in the West, has also become big in China. Craft beer is viewed as more flavoursome than the traditional variety.

2. In any case, Budweiser AsiaPac is a peripheral player in China. Budweiser is the third largest beer brand in China in terms of revenue, while Harbin, another brand owned by Budweiser AsiaPac, languishes in fifth place. Heineken has secured an exclusive distribution deal with the incumbent market leader China Resources Beer, which presents a serious hurdle to Budweiser AsiaPac.

3. There is limited scope for cash-based acquisitions in Asia, as the parent has US$100 billion in net debt. Potential target companies such as Thai Beverage and San Miguel would be averse to stock-based acquisition bids, in our view, because of Budweiser AsiaPac's poor market position.

4. At least a fifth of Budweiser AsiaPac's revenue is derived from the mature markets of Australia and South Korea. Both these markets are ex-growth and do not command the premium valuations of an emerging market.

In our view, investors should either avoid this issue or bid for the bottom of the range. If not, we think they could be risking a nasty hangover.