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Categorized | Equities

AB InBev plans buy-back and dividend rise

Posted on February 26, 2015

Bottles of Budweiser beer sit on ice during a press conference in Moscow, Russia, on Wednesday, May 19, 2010. Anheuser-Busch InBev NV, the world's largest brewer, started selling its Budweiser brand of beer in Russia, the company said in a statement today. Photographer:Alexander Zemlianichenko JR/Bloomberg©Bloomberg

A strong World Cup in markets such as Brazil offset disappointing performance in the US and Europe

Anheuser-Busch InBev focused on returning cash to shareholders in its fourth quarter results as analysts played down expectations of a “transformational” acquisition from the world’s biggest brewer by market capitalisation.

The maker of Budweiser launched a $1bn share buy-back and increased its dividend by nearly 50 per cent even after its fourth-quarter earnings fell short of estimates on Thursday.

    AB InBev is subject to renewed rumours that it is set to buy a rival brewer or soft drinks company. The sector has seen heightened M&A chatter since London-listed rival SABMiller’s attempt to buy Heineken was knocked back by the Dutch group.

    Analysts at Bernstein warned that AB InBev’s focus on organic growth and cash returns made any big M&A deal unlikely over the short term. An acquisition of SABMiller would be “expensive” and “high-risk”, particularly as the Anglo-South African group’s share price is close to a record high, according to Trevor Stirling, analyst at Bernstein.

    Shares in the group initially fell but rallied in late afternoon by 3.1 per cent to €113.60 – an all-time high.

    Overall in 2014, a strong football World Cup in markets such as Brazil helped offset some of the disappointing performance in the US and Europe, where beer sale volumes fell 1.4 per cent and 6.1 per cent respectively.

    The Belgian-listed drinks group, which owns brands ranging from Budweiser to Stella Artois, reported adjusted earnings of $5.07bn for the quarter, up 5.6 per cent year on year, but short of the $5.27bn forecast by analysts.

    AB InBev said that improving the performance in its US market, with a focus on more expensive beer and introducing similar products such as cider, was one of its main priorities. But Felipe Dutra, chief financial officer, said that turning round brands such as Budweiser was “not an easy challenge”.

    Budweiser – which goes back 139 years – has struggled to gain market share among younger drinkers in the US, who are opting for craft beer over mass-market rivals. Sales outside the US account for 60 per cent of the brand’s volumes.

    Investors received better news on the dividend, which AB InBev said would rise to €3 for the whole of 2014 – slightly more than an estimated €2.92 and nearly 50 per cent up on 2013’s dividend.

    Mr Dutra outlined plans to increase the group’s dividend yield to 3-4 per cent from its current level of 2.7 per cent, bringing the brewer into line with other consumer goods groups.

    The share buy-back will go ahead throughout 2015. AB InBev’s shares have rallied by nearly a fifth since the start of 2015 as investors anticipated increased cash returns from the brewer.