di Philip Gorham, Sector Strategist di Morningstar
Heineken‘s first-quarter trading update revealed strong organic volume growth that puts the firm on track to meet our full-year expectations. This was a strong start to the year and we remain comfortable with our 2016 forecasts, which are slightly above consensus. Heineken has sufficient scale to generate a cost advantage over new entrants, but competes at a cost disadvantage to its larger competitors, and this is the driver of our narrow economic moat rating. Heineken possesses the worlds largest international premium lager brand, which should position it well to gain share in the medium-to-long term. We are reiterating our EUR 79 fair value estimate for the ordinary shares, but we are raising our fair value estimate of the ADRs to $45 from $44 to account for the slight depreciation in the U.S. dollar since our last update. Much of the good news appears priced into the stocks, and with Heineken trading at almost 22 times 2016 earnings, we believe the stock is fully priced.
Organic growth in consolidated beer volume of 7% was double the 3.5% growth posted in 2015, and reflects a strong New Year season in China and Vietnam. Management stated that Brazil and Mexico contributed to the solid organic growth performance, which possibly has a negative read-through for Ambev and Anheuser-Busch InBev, as it may imply that Heineken took volume share. As the growth in some of the firm’s Latin American and Asian markets may not be sustainable throughout the year, we remain comfortable with our above-consensus forecasts of 3% volume growth and 4% revenue growth in 2016. Beyond that, we believe Heineken can achieve 5% organic revenue growth annually, driven by share gains in the premium lager segment, and modest margin expansion. This implies mid- to high-single-digit EBIT and earnings per share growth.
The looming merger between Anheuser-Busch InBev and SABMiller is a negative for Heineken, in our opinion. The combined entity is likely to reinforce its cost advantage over Heineken, although this will be limited to raw materials procured on a global basis. The combined firm will have some overlap with Heineken geographically, particularly in Europe, Vietnam, Brazil, and Colombia, and Heineken may face a rejuvenated competitor in some core markets by the end of the year.