Compania Cervecerias Unidas (CCU, Financial) is the largest brewer in Chile. The company is majority owned by Heineken and another holding company and has an awesome portfolio of brands including Pepsi, Absolute Vodka and Perrier, to name just a few. The company is very profitable though the stock is a little pricey at this point.
The stock trades for $29.53 and the market cap is $5.24 billion. Earnings per share are $1.15, so the price to earnings ratio would be 25.7. The dividend is 56 cents and the dividend yield is 1.9%. The stock trades on the New York Stock Exchange, so that makes it super convenient to buy.
The profit margins are 7.63% and operating margins 13.33%. Return on equity is 12.2%. Beverage companies are notoriously profitable. Free cash flow was $61 million and the free cash flow yield is 1.16%. The stock is pretty expensive on that metric.
Sales grew from $1.08 billion in 2012 to $1.67 billion over the last 12 months. That’s great growth. Free cash flow (when it’s positive) has ranged from $21 million to $88 million over the last six years. It appears that there is always quite a bit of capex. According to the annual report, much of capital expenditures was in Chile for bottling and packaging plants and equipment. I wonder when it will slow?
It takes 603.9 Chilean pesos to buy one dollar. The peso has depreciated about 50% over the last five years. Since mining accounts for 59.5% of exports, an increase in metal and copper could boost the peso. All of those miners are going to need a nice cold beer after work and CCU will be there.
Some of the beers sold in Chile include: Cristal, Cristal CERO 0º, Cristal Light, Cristal Cero Radler, Escudo, Silver Shield, Royal Guard, Royal Guard Black, Royal Guard Scotch Ale, Morenita, Dorada, Andes and Stones. The company holds the license for: Heineken, Sol and Tecate and Coors. CCU holds the license for Pepsi (PEP, Financial), Seven-Up and Schweppes. Nice portfolio of household names.
The best-known bottled water that CCU distributes in Perrier from Nestle (NSRGY, Financial). A contract with Pernod Ricard allows CCU to distribute well-known liquors such as Absolut Vodka and Kahlua. Some of the wine brand names include: San Pedro, Tarapacá, Santa Helena, Misiones de Rengo, Leyda, Altaïr, Viña Mar and Casa Rivas. I’m very impressed by the blue-chip portfolio of beverages.
In the annual report, CCU breaks down sales as: 64% Chile, 24% International (which includes Argentina, Paraguay and Uraguay) and 13% for the Wine division.
According to Morningstar, per capita beer consumption has grown 2.6% a year. Chile contributes 75% of revenues and CCU holds 42% of the market. Morningstar notes that CCU faces a lot of competition from Coca-Cola, which dominates over Pepsi in Chile and from Ambev, which dominates over CCU’s beer outside of Chile. Morningstar has a fair value of $25. In other words, they think the stock is expensive at $29.
Inversiones y Rentas S.A., or IRSA, which is jointly owned by Heineken and Quinenco (a holding company of one of Chile’s largest conglomerates), controls 60% of CCU’s shares. Heineken made the purchase in 2003. It’s amazing how Inbev (BUD, Financial) and Heineken (HEINY, Financial) have taken over the global brewing markets.
So is the stock a buy? No. Not at this price. A few years ago when the price-earnings ratio was in the mid-teens was the time. It’s too pricey. An investor would also need to know when capex is going to slow because these low free cash flow numbers are not attractive. Having said this, I would buy the stock. CCU has an incredibly strong portfolio of beverages and people aren’t going to stock drinking in South America. It’s a good stock to buy the next time there is a crisis in Chile.
We own shares in Heineken Holdings.
