King of Beers,' Fizzling in U.S., Sets Goal of World Domination
Comment of the Day

July 30 2013

Commentary by Eoin Treacy

King of Beers,' Fizzling in U.S., Sets Goal of World Domination

This informative article by Mike Esterl for the Wall Street Journal may be of interest to subscribers. Here is a section
Budweiser does have some natural advantages in the country, where Anheuser-Busch began brewing the beer locally at a facility in 1995. Like many Chinese beers, Budweiser is made with rice, not just barley, giving it a mild taste that, while a turnoff to many beer snobs, is widely favored by Chinese consumers. What is more, the brand's chief color is red—same as the Chinese flag and a color that represents good fortune and happiness to the Chinese.

The brewer has also only begun the long journey of reaching drinkers outside big cities. It now makes Budweiser in eight breweries in China, up from two in 2008. Its new brewery in Ziyang in Sichuan province is more than 1,000 miles from China's coast, the company's farthest inland plant. "The West is a new country for AB InBev,'' says Jeff Liu, a former Coke executive, who heads AB InBev's Western China business.

Eoin Treacy's view Alcohol represents a growth market as increasing numbers of people move into the middle classes and explains why the major brewers have been so aggressive in expanding into some of the world's fastest growing markets. This type of expansion is not cheap and while the growth trajectory of brewers is undeniable, valuations have expanded.

Anheuser Busch/InBev (Est P/E 18.66, DY 2.5%) is an S&P Europe 350 Dividend Aristocrat. The share has lost momentum since hitting a medium-term peak in April and will need to continue to hold above €60 if the benefit of the doubt is to continue to be given to the medium-term upside.

SAB Miller (Est P/E 18.8, DY 2.3%) accelerated to its April peak and has pulled back to test the region of the 200-day MA. It will need to continue to hold above 3000p if the benefit of the doubt is to be given to potential for higher to lateral ranging.

Diageo (Est P/E 19.57, DY 2.5%) posted a large downside weekly key reversal at the April peak and another last week to post a third lower rally high. It will need to continue to hold above the 1800p to sustain the medium-term upward bias.

The fact that all three of these shares accelerated to peaks earlier this year following what were already impressive advances suggests that they will at least spend some additional time consolidating earlier gains. This should allow valuations to improve.

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