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How do you ruin results day for a brewer? Accuse them of watering down the beer. Disgruntled drinkers have launched a U.S. lawsuit accusing AB InBev of watering down brands such as Budweiser. InBev denies the claims, but at least they might have distracted attention from the cautious outlook for the start of 2013, with carnival timing hitting sales in Brazil and hard up consumers drinking less in the U.S.
The longer-term perspective is only slightly brighter. InBev is one of the most efficient brewers in the business, with a profit margin at the level of earnings before interest, tax, depreciation and amortization of 39 per cent. Of the other big global brewers, only SABMiller comes close with a margin of 32 per cent.
But margin improvement has slowed after healthy increases in 2010 and 2011, leaving InBev relying on revenues to push profits. With volumes flat, that growth has to come from higher prices. InBev has done well here. It sold beer at an average price of 87 cents (U.S.) a litre in 2009 but by 2012 that had increased to 99 cents a litre. However, even with innovations such as Budweiser Black Crown and bow-tie shaped cans, price increases cannot go on forever.
That conundrum is one reason why InBev is so keen to get its hands on Mexico's Grupo Modelo. As well as the extra sales, there is the chance to improve Modelo's 29-per-cent EBITDA margin and invent a crate full of new, more highly priced versions of Corona.
InBev's enterprise value is just under 11 times forecast EBITDA. Historically, that has been a lousy rating at which to buy the shares – the last time they hit that level, they lost a fifth of their value in the next 10 months. True, it is a discount to SABMiller on 14 times, and the company is healthy enough to keep the acquisitions coming. But buying here requires faith in InBev's ability to deliver organic growth.