We sold LafargeHolcim (XSWX:LHN, Financial) to opportunistically fund a position in Anheuser-Busch Inbev (BUD, Financial) (ABI). ABI is the world's largest brewer and its global 27% market share is more than twice the volume of the #2 player. Importantly, its dominant market share positions, strong brands and vertical integration allow it to generate industry-leading margins, returns and cash flows. ABI's significant scale advantage enables it to earn more than 4x the profitability of the #2 player. The majority of the company's profitability is derived from developing markets where duopoly market structures, growing per capita income and premiumization drive attractive growth and profitability. ABI is a good example of finding opportunities during times of volatility. We have long covered the company and admired the franchise from afar, but our strict valuation criteria kept us on the sidelines. However, when the share price fell by nearly 50% due to shorter term Covid-19 concerns, we quickly ramped up our research and initiated a position. Covid-19-related closures of bars and restaurants have depressed recent operating performance, which has hurt sales in the on-trade channel and pressured the stock price. Nevertheless, we expect these headwinds will prove short term. We think that ABI's scale should enable it to outperform smaller peers during this pandemic. Notably, the company's debt structure has been smartly termed out, so it has plenty of liquidity to invest while navigating the pandemic. ABI's management has done an excellent job of creating long-term value and its interests are aligned with shareholders.
From David Herro (Trades, Portfolio)'s Oakmark Global Fund third-quarter 2020 shareholder commentary.
