Heineken – Strong positions where demographics are strongest

October 27, 2016

"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.

 

The majority of drinkers of legal age within the next decade will be African.

 

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.

 

With low per capita consumption, good population growth and a positive GDP outlook, Africa offers one of the best long-term volume opportunities in beer.

 

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.

 

Emerging 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).

 

Heineken is also well positioned in other attractive emerging market countries notably Vietnam and Mexico.

 

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.

 

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