EUR 850.00 For Business Accounts Only

Morningstar | In-Line 4Q for Heineken; Shares Fairly Valued

Heineken reported fourth-quarter and full-year 2018 results that were very close to our forecasts, with a modest beat on the top line thanks to upside in the Africa and Middle East segment, and a near-miss on the EBIT line. Guidance for next year is slightly below our estimates, and although we are likely to lower our near-term forecasts, this is unlikely to have a material impact on our EUR 85 fair value estimate for the Amsterdam-traded ordinary shares. Heineken appears fairly valued at current levels.

The good news in the fourth quarter was a decent performance in the Africa and Middle East segment, where volumes grew 5% organically, despite challenges in Nigeria. Total volume in South Africa was up "strong double digit" which may have positive readthrough for AB InBev, although the Heineken brand appears to be performing particularly well there. One of the themes of this fourth quarter report is the incremental volumes that Heineken 0.0, the alcohol-free beer that Heineken is rolling out in several geographies, appears to be delivering. Given its lower tax burden in most markets, this category is likely to also be margin accretive.

Despite this margin tailwind, Heineken's EBIT growth was slightly disappointing, falling 17 basis points on a full-year basis due to the mix effect of the consolidation of Brazil and unfavorable currency moves. Guidance for mid-single-digit EBIT growth in 2019 was slightly below our forecast, but in line with our medium-term assumption. We expect premiumization, as demonstrated in these results by the strength of the premium portfolio, to drive multiyear margin expansion, and we think Heineken is executing well on its opportunities for volume and mix-driven growth.