One, two, sell! | De Tijd
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One, two, sell! | De Tijd

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In a hectic week, investors pressed the sell buttons in panic, only to pass on buy orders a little later. And our beer giant AB InBev is considering selling its historic German brands.

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Beer aficionados who flock to the Bavarian capital of Munich at this time of year to attend Oktoberfest are in for the second year in a row. In May, the local government announced that the 187th edition of Europe’s largest folk festival will not take place. The third corona wave that then engulfed Germany threw a spanner in the works. The more than 6 million visitors will have to consume their barley liquor elsewhere. No bratwurst. No lifting with liter mugs in the 38 overcrowded party tents. No fair. No flirting between Dirndls and Lederhosen in the notorious Kufflers Weinzelt (where wine is also served and more women are present). And no sick stomachs on the Kotzhügel, the vomit hill behind the Hofbräu marquee.

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It’s bad news for AB InBev

. The Leuven beer giant brews two of the six official Oktoberfest lagers with Löwenbräu and Spaten and normally has several mega tents for thousands of drinkers. Only Munich brewers are allowed to tap beer during the party. In 2003 the then Interbrew incorporated the merged company between Spaten-Franziskaner-Bräu and Löwenbräu, giving the Belgians a firm foothold in Germany’s second largest city.

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Take a guess, drink spade

AB InBev’s new American CEO, Michel Doukeris, is apparently not a fan of German beer traditions. According to the Bloomberg news agency, the brewer polls for potential buyers for its German brands. This would mean that AB InBev would say goodbye to one of its oldest parts. Spatenbräu was founded in 1397 and is one of the oldest companies in the world, just like Stella Artois. The slogan ‘Lass Dir raten, trinke Spaten’ – loosely translated: ‘Listen to this good advice, drink Spaten’ – is, together with ‘Bitte ein Bit’ from rival Bitburger, one of the best known in Germany. Similar to ‘Delicious, Clear, Heineken’ with the Dutch. Since 1924, the slogan has featured on beer cards, billboards and atop the brewery’s large Oktoberfest tent.

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The sale could fill the Leuven cash registers with around 1 billion euros. According to sources at AB InBev, the German regional brands are profitable, but the growth potential is lower because they are barely exported. Doukeris only sees potential in Beck’s, which until a few years ago was a ‘global brand’ at AB InBev. The German beer market is very fragmented, with many local breweries barely innovating. One in four beers in Europe flows from German stills, but the Germans prefer to drink them themselves. The country is only the third largest exporter in the EU, after the Netherlands and Belgium.

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In addition, Doukeris wants to focus more on drinks other than beer, such as cocktails, hard seltzers, wine or energy drinks, which are taking more and more of the market share. A giant like AB InBev has to expand its territory to keep up with all the trends, but it is dangerous to bet too much on it. Just ask Boston Brewing Company. That channeled almost all investments into hard seltzers – aromatic sparkling water with alcohol – but that hype has died down. The brewer, with the Truly brand the number two on the American hard seltzer market, did not even lose its produced stock and had to pour some of it into the sink. The consequence? The price has halved this year.

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Instead of writing off Germany, AB InBev could also persuade our eastern neighbors to drink something other than a lager or Weissbier.

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Instead of writing off Germany, AB InBev could also persuade our eastern neighbors to drink something other than a lager or Weissbier. Something developed by the local daughters, given the beer chauvinism of the Prussians. A top-fermented beer with refermentation in the bottle, for example, à la Duvel, Omer or Cornet. Not something like the many Leffes who are losing market share in Belgium at lightning speed. Making Germany a growth market with products with higher margins seems a better alternative for shareholders than leaving the country.

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Shrinking barrel

AB InBev has been a shrinking vessel for years. Since the acquisition of SABMiller costing more than 100 billion dollars in 2016, Leuven has had to constantly tighten its belt to cushion its debts. Several assets went out the door. But what you sell can no longer yield. Since the takeover, the share price has fallen by 60 percent. The debt sink stood at EUR 72 billion at the end of June, or 4.4 times gross operating profit. A billion euros less due to a German sale does not make the difference. That is barely more than the 785 million euros that the group has to cough up in interest charges per quarter. Fortunately, the debts have a very long maturity and AB InBev has sufficient cash reserves, so that the brewer is not a mandatory seller.

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For those who want to buy some AB InBev shares, there could be selling pressure in the coming weeks, which could represent an opportunity.

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For those who want to buy some AB InBev shares, there could be selling pressure in the coming weeks, which could represent an opportunity. On October 10, the five-year lock-up period in which the tobacco giant Altria was not allowed to sell shares of the Belgian brewer will expire. Altria owns 10 percent of AB InBev. The majority (9.4%) are blocked shares. Most observers assume that Altria doesn’t want to stay in the beer maker forever.

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We don’t know whether Altria will sell. Many investors did, in a spectacular week that looked a lot like a James Bond movie. Although there were also differences. The Russian on duty this time was not the ‘bad’ but the ‘good guy’. Vladimir Putin succeeded with a vague hint – that Russia would supply more gas – to calm down somewhat in the unleashed natural gas price. Thanks to the Russian president who once made a career as a KGB spy, the stock markets ended the week ‘stirred but not shaken’. The EuroStoxx50 index dangled 3 percent lower on Wednesday than at the end of last week, but closed the five-day gain with more than 1 percent.

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The expensive energy unleashes inflation fears, resulting in a rise in interest rates. In addition, it threatens the productivity of energy-intensive companies. The so-called goldilocks scenario with low interest rates and high growth that has propped up the markets for twelve years – with a break due to corona – threatens to turn around. At the beginning of the week, this led to a sales avalanche. After Putin’s speech on Wednesday, investors couldn’t push the buy buttons again soon enough. It is certain that investors are increasingly doubting the Powellus and Lagarda gospel that the inflation surge is only temporary. A little more caution is advised.

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More and more investors are questioning Powellus and Lagarda’s gospel that the inflation surge is only temporary.

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Whoever was not on the sell side but on the buy side was Ter Beke

. The maker of meat products and ready meals, known from Come a Casa, is taking over the Benelux activities of the Mexican group Sigma. This means that brands such as Ardennes Marcassou, Aoste and Imperial will be added to the Ter Beke portfolio. Unfortunately, we hardly got any concrete figures about the mega takeover. The company from Lievegem increases its turnover by an estimated 300 million euros or about 42 percent. According to CEO Piet Sanders, the deal immediately contributes to profits, and the debt ratio is barely affected.

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Fortunately, Sigma gave us more information. The branch sold represents about 1 percent of the group’s gross operating profit (EBITDA). That is converted to 5.91 million euros. At 2 percent, the EBITDA margin is three times lower than at Ter Beke in the first half of the year. So there is a lot of room to boost profitability. A disadvantage is that the ready meals branch, which the market attaches a higher value to due to the better growth prospects, decreased from 37 to 27 percent in turnover. But we give Ter Beke the benefit of the doubt. And now I know that I am once again supporting a Belgian share when I put my weekly pack of Marcassou sausage in the shopping cart. For the beer, now that we can’t go to Munich.

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