Profit from beer drinkers in Chile
You could be forgiven for thinking that there's no money left in beer. But you'd be wrong. European sales may be down, but in Latin America and Asia they're on the rise.
Yesterday was a grim day in the drinks trade.
First, Diageo announced a 6% slump in sales in the three months to 30 September. Then 400-year-old brewer Shepherd Neame announced it would sell up to 35 unprofitable pubs, nearly 10% of all the properties it owns. Punch Taverns had a pretty grim set of results too, as my colleague David Stevenson has noted (Punch looks cheap but don't buy). And if all that wasn't bad enough, Newcastle Brown Ale lovers learned that production of the beer was moving from Tyneside to Yorkshire, as beer volumes slumped at its Dunston-based factory. Ouch.
So you could be forgiven for thinking that there's no money left in the beer trade. But you'd be wrong. European sales volumes of both spirits (down 5%) and beer (down 4%) have fallen this year. But in Latin America and Asia they've been rising. According to the Canadean Global Beer Trends Report, beer sales rose 5% in Asia last year, with China accounting for seven litres of every ten drunk.
We've written in the past about which Asian beer company we like best (see: The Asian beer company to buy now). But Latin America is also worth a look. Beer sales were up a respectable 3% in 2008, with both Chile and Brazil seeing 4% sales growth. AMBEV (NYSE: ABV.C), the maker of Brahma beer and the sole distributor of Pepsi in Brazil, is one obvious play on this. But on a forward p/e of 19, it is - like most Brazilian stocks right now rather expensive looking.
With 85% of the Chilean beer market, Compaia Cervecerias Unidas S.A. (NYSE:CCU), trading on a far less frothy forward p/e of 13.5, might be a better bet for now. It's been making its own beer for 100 years, and also has licensing agreements with other alcohol companies such as Heineken and Guinness. But it's not just beer the group has similar licensing deals with non-alcoholic drinks firms such as Pepsi and Schweppes, a useful spot to be in, given that soft drinks sales in Chile rose 6% in the second quarter of 2009, according to JPMorgan.