Fed up with the rain? Had enough of reading about the dire state of the UK economy? Me too. Let’s talk about sunshine and beer.
Latin America is a place with pretty hot summers, so you’d think people would like a beer. And they do… but, it appears, not nearly as much as us Brits. In fact the average Latin American drinks less than half the amount of beer per year (under 50 litres) than the average Brit.
But that’s changing. And this spells a real opportunity for brewers, and for UK investors to play the recovery in a decent economy…
Last year Argentina saw a 31.5% jump in beer sales, while SAB Miller, the world’s second largest brewer, this week reported a big jump in sales across Latin America. In Ecuador, the amount of SAB lager drunk was up 14%. And in Peru, sales rose 9%. You get the picture. As people’s disposable incomes began to increase, they wanted to spend more money on beer.
Nowhere is this more the case than in Chile. Like Namibia and East Africa, Chile owes its beer drinking culture to the Germans, who first crossed the Andes in the 1850s. But it wasn’t until several years ago that Chileans, buoyed by higher incomes, began drinking ales and pilsners in larger quantities. How much more?
Beer consumption is growing in Chile
Beer companies in Chile saw their sales rise to 600 million litres in 2008, a 5% jump from 2007, according to the latest figures from Chile’s Beer Producer’s Association (ACECHI). They put this down to the hotter than usual summer temperatures, but also changing consumer tastes. When people sit down after a day at work, they’re beginning to prefer a cool bottle of Kunstmann Bock, a German-Chilean beer, to a glass of Casillero del Diablo.
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But beer consumption still sits at a measly 36 litres a head, below Venezuela and Mexico, who downed 95.4 and 58.4 litres respectively in 2008. (Back in 2004, your average Venezuelan was drinking 58.6 litres a year).
The Chilean economy does look to be slowing slightly though. Unemployment was 8.5% in December through February, up from 8.0% in the previous three-month period and could be headed for double figures. That could have a major impact on incomes. However, thanks to the six-year long rally in copper prices, Chile boasts a $22 billion windfall that it is now putting aside for a major stimulus package. No wonder Moody’s recently raised its rating on the country’s debt by one level to A1. That made Chile the only investment-grade country to have had its rating lifted this year.
A company set to profit
How can you play the growing taste for beer south of the Rio Grande? SAB Miller (LSE:SAB), which has a dominant share in several Latin American Markets, owes 23% of its revenues to the continent. However, it is highly exposed to the more mature US market, where there is a growing trend towards specialist craft beers from microbreweries.
In Chile, sales of premium beers such as Kunstmann increased by 15.3% in 2008. However, given the fact that Kunstmann is not listed, an easier way in would be by looking at Compañia Cervecerias Unidas S.A. (NYSE:CCU), the Chilean Beverage company. Operating in Chile and Argentina, it controls 86% of the Chilean beer market, and boasts licensing agreements with companies such as Heineken, Pepsi, Schweppes and Guinness.
Sales in the first quarter of 2009 increased 3.5% on the year for the Santiago based company. That was down from a 7.5% rise in Q1 2008, but the stock is still up 14.24% for the year and trading on a relatively modest forward p/e of 13.6. It also doesn’t carry too much debt relative to shareholder equity on its balance sheet.
It looks like a promising stock to us, and one which should grow in the years ahead.
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