AB-InBev and Constellation’s stocks wobble
Jittery nerves or what? Investors have been dumping Coke, Procter & Gamble and other defensive stocks, shifting funds toward infrastructure and banking sectors after Donald Trump’s victory, US media say.
Although no one knows yet if the US president-elect, a teetotaller, will hike excise on alcohol to fund his costly infrastructure projects and pull out from the North American trade agreement NAFTA, some shareholders in the world’s number one brewer seem to have taken these uncertainties as a pretext to sell their shares.
Moreover, analysts at HSBC have downgraded AB-InBev in a post-election report, saying that the beer-maker could have to deal with more difficult conditions, not just in the US, but also in key international markets like Brazil. Going forward, they argue, AB-InBev will have to demonstrate its ability to deal with geopolitical changes and continue the growth that the beer industry has seen in recent years.
Shares in Constellation Brands also dropped slightly on concern that a Donald Trump presidency could hurt sales of Corona Extra, the top-selling import beer in the US.
In addition to selling Mexican beer brands, Constellation also owns beer manufacturing in Mexico and is in the midst of a USD 4 billion-plus expansion push south of the US border. On 31 October 2016 it announced it would pay AB-InBev some USD 600 million to acquire one of its Mexican breweries to meet rising US demand.
Media say all this leaves it vulnerable to a potential tightening of cross-border trade. Constellation had a turnover of USD 6.55 billion in its past financial year ended February 2016, of which USD 3.62 billion came from beer, almost all of it from Mexico.
Constellation’s CEO Rob Sands said that it is “way too early” to know how a Trump administration will affect Mexican trade and immigration.
Besides, it might take Mr Trump a while to renegotiate NAFTA. Still, Bank of America slashed its recommendation on Constellation shares to “underperform” from “neutral” and cut the price target to USD 150 from USD 195, it was reported.
US imports of beer from Mexico rose 15 percent in the first nine months of 2016, according to the Beer Institute. Mexico represented 67 percent of US beer imports, which increased 7.4 percent in total.
Heineken too may be impacted as it is the second-largest seller of Mexican beers in the US, including Dos Equis and Tecate. But Mexican imports represent a much smaller part of Heineken’s overall business than Constellation’s.
