What is behind brewer Haacht’s recent stock rally?
Is there a reason why Co.Br.Ha, under which the Haacht brewery is listed, has seen its share price skyrocket in merely one week? During the last week in June 2018 it picked up over EUR 300 per share to reach EUR 4,820 (USD 5,630), thus continuing its rally that began in December 2017 when the share price was only EUR 3,700.
We wonder: Is someone purposefully driving up the stock to make a sale of the company more attractive to its refusnik CEO, Frederic van der Kelen? He has run the company, known for its brands Primus, Super 8, Tongerlo and Keizer Karel, since 1968 and has always turned down offers. Mr van der Kelen, whose family owns an estimated 86 percent of the stock, turned 85 in June.
Or has the company become the target of activist investors, who seek to take a stake in stock, sometimes upwards of five percent of outstanding shares? These activists clearly carry a lot of weight with their recommendations and voting power. Their intentions vary. Often, they like to enforce strategic changes like naming new board members and changing corporate structures. But one alarming trend is the forcing of sales and deals.
The stock’s rally has provided Co.Br.Ha with a market capitalisation of over EUR 360 million (USD 421 million). Not bad for a company which sells perhaps one million hl of beer and beverages per year and whose turnover has only risen moderately in recent years. Its turnover in calendar 2017 was EUR 109 million (USD 127 million), up 3.9 percent over 2016 and its EBITDA margin stood at 21 percent. The company is almost debt-free and its equity ratio around 70 percent.
Recently, Mr van der Kelen admitted that the share gain has taken him by surprise too, although he refrained from commenting on the valuation. As to outsiders speculating on an acquisition or delisting of the company, he merely repeated what he has said all along: “This will never happen.”
Despite Mr van der Kelen’s protestations, Haacht remains an attractive takeover target not least because of its large pub estate. On-premise beer consumption in Belgium has suffered since 2016 when the Brussels bombings killed 32 innocents and subsequently made people too scared to go out. In 2017, over 100,000 hl in beer sales were lost in the on-premise, compared with 2016. But the on-premise still represented 43 percent or 3.3 million hl of total beer consumption in 2017.
Market observers believe that Haacht owns and controls several thousand pubs in Belgium, making it one of the most profitable pub estates in Belgium, perhaps even more profitable when it comes to beverage sales than AB-InBev’s estate, which has an estimated 50 percent share of on-premise beer sales and Heineken-owned Alken Maes’, which has 25 percent. The reason why Haacht’s pubs are lucrative is that they only sell Haacht products: namely its beers, soft drinks, including Pepsi, wines, and coffee. Also, in the past Haacht has invested heavily in its pubs.
It should not be forgotten that money-spinning pubs can attract high valuations in Belgium. For example, when the Antwerp brewer de Koninck (then 40,000 hl in beer output) was sold to Duvel Moortgat in 2010, it was revealed that it fetched around EUR 36 million (USD 52 million). However, the brewery was valued at only EUR six million, whereas de Koninck’s 63 bars commanded EUR 30 million.
In order to become less dependent on the Belgian hospitality sector, the Haacht group is stepping up its international business. It is also showing more willing to engage with retailers in Belgium – a novelty. Last year, Haacht’s sales in the on-premise dropped 3.4 percent, but total domestic sales rose 4.1 percent as more consumers grabbed a Haacht beer from the supermarket shelf.
What is driving Co.Br.Ha’s share price?
