EUR 850.00 For Business Accounts Only

Morningstar | Heineken Again Sets the Bar High in 1Q; Shares Fully Priced

Heineken is tracking ahead of our volume estimates for this year in every geographical segment except the Americas after a strong first-quarter trading update. We believe the firm increased volume at a rate above the market, in line with our narrow moat and positive moat trend ratings, which reflect Heineken's strengthening cost advantage over smaller competitors as its premium portfolio drives share gains over time. At this early stage in the year, however, we are maintaining our forecasts and reiterating our EUR 88 fair value estimate. Although we are impressed by Heineken's recent performance, we think it is already fully priced into the market valuation of the stock.

Consolidated organic beer volume growth of 4.3% in the first quarter is ahead of our 3% estimate for the first half of the year. The upside was broad-based, but the Africa, Middle East, and Eastern Europe segment performed particularly well, with 7.8% organic growth. Double-digit growth in both Brazil and South Africa highlight the value of Heineken's recent acquisitions, but it is the premium portfolio that we think will drive growth in late-stage developing markets in the medium term. The Heineken brand grew 8.3% organically in the first half.

On very limited disclosures, the read-through from these results is better for Carlsberg than it is for Anheuser-Busch InBev, in our opinion. The United States is very small for Heineken, but it is around 20% of AB InBev's EBIT, and Heineken said its U.S. volume declined in the mid-single-digit range despite the introduction of Heineken 0.0. Southeast Asia, on the other hand, was positive, with double-digit growth in Cambodia and high-single-digit volume growth in Vietnam, where Carlsberg also has a footprint. Another positive indicator for Carlsberg was the decent performance in Europe, where volume grew 1.6%. This is not likely sustainable, however, and was probably boosted by warm seasonal weather.