The majority of drinkers of legal age within the next decade will be African.
Last month International equities fund manager, Insync Fund Managers, initiated a position in Heineken. Insync takes the view that there are two key long term secular drivers supporting their investment in Heineken.
Firstly, it now has the best-in-class emerging market exposure with nearly 60% EBIT (earnings before interest and tax) exposure to these fast growing markets.
Secondly, the global beer industry has been through a long period of consolidation over 15 years resulting in the top two players, Heineken and AB Inbev/SAB Miller, controlling over 55% of the global beer profit pool. This should result in a rational pricing environment in most parts of the world.
Africa – Great beer demographics
With low per capita consumption (typically 10 litres or less in Sub-Saharan Africa), good population growth and a positive GDP outlook, Africa offers one of the best long-term volume opportunities in beer.
Africa has the world’s largest working age population.
In Tanzania for instance, over 45 percent of the entire country is aged between 15 and 45, and that figure is increasing by the year. Basically, the majority of drinkers coming of legal age within the next decade will be found in Africa.
Africa’s middle class is growing, and they will be thirsty. The big future drivers are likely to be Nigeria, Ethiopia and Democratic Republic of Congo, given the population/per cap consumption equation. Notably, Heineken has a major presence in each of these three big markets.
Africa should deliver over 40% of the top line growth in beer in the next decade for the industry. Whilst Africa is probably the most attractive region for long-term profit growth for the global brewers, Heineken is also well positioned in other attractive emerging market countries notably Vietnam and Mexico (which currently represents a quarter of EBIT in total).
We believe that Heineken has been transformed into a quality compounder with margins and return on invested capital rising in the coming years. Heineken is entering a period of faster growth with its exposure to diverse emerging market growth, including the African demographic megatrend, a balanced brand portfolio and a rational industry structure with two players controlling a large part of the global beer profit pool.
Mr Monik Kotecha CIO Insync
Fund Managers (02) 9216 2977 0413 768 480
Distributed by Chris Hocking Strategies 0418 603 694
Originally published 27 October 2016.
To download as a PDF, click link Heineken – Strong positions in markets where the demographics are the strongest.
About Monik Kotecha
Monik Kotecha is the chief investment officer at Insync Fund Managers which invests in highly profitable companies that are benefitting from global megatrends.
He has worked in London, New York and Sydney. He spent over 7 years as a Senior Portfolio Manager at Investors Mutual Limited, 5 years with BT Funds Management Limited and 3 years with the Abu Dhabi Investment Authority.
Monik has considerable hedging and currency risk experience.
About Insync Fund Managers
Insync manages a concentrated, large cap global equity fund incorporating downside protection strategies and active currency management.
The fund is managed conservatively, with an absolute return focus, given that the key to compounding strong long term returns is to minimise drawdowns.
The stocks that Insync focuses on are exceptional global businesses with high returns on invested capital, strong free cash flow generation, solid balance sheets and a track record of returning cash to shareholders through growing dividends and/or share buy-backs.