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4-2017

Global hop market

A local alternative to mass beer suggested by independent brewers has been successful and is now altering the global market. Beer is becoming more diversified, so transnational companies have to accept the new game rules and to switch focus to young and fast growing markets. All these processes increased the demand for aroma and bitter hop as well as their acreage expansion on two continents. However now there appeared a downward trend of alcohol consumption in the world, so even special sorts can soon turn to be sufficient. In this connection the dynamic American hop market is already facing some problems. EU hop producers have become more cautious, they are not racing to exceed the demand and look forward with more confidence, judging by the contract terms. 

Hop Market in Russia

Germany still dominates the Russian market, yet over the recent two years one has been able observe a continuous success of Czech hop suppliers. Their expansion and growing popularity of hops from the United States became the drivers of supplies growth in 2016 despite the preceding modest harvest crop in the EU, as well as the factor of relative stability in 2017. In this connection, in 2017, the ratio of the varieties continued to shift towards the aroma ones, and the supplies of Magnum hop and other alpha varieties were reduced. However, the import of bitter hop pellets is partially replaced by extracts, especially from the major beer manufacturers. Total volumes of alpha acid supplies, according to our estimation, decreased by approximately 5% and returned to the level of 2015. Barth Haas Group continues dominating the hop products market; HVG also increased its weight. At the same time, Morris Hanbury significantly reduced the supplies in 2017.

Is Ambev the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Ambev (NYSE: ABV  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Ambev.

FactorWhat We Want to SeeActualPass or Fail?
Growth5-Year Annual Revenue Growth > 15%9.6%Fail
 1-Year Revenue Growth > 12%8.8%Fail
MarginsGross Margin > 35%66.5%Pass
 Net Margin > 15%30%Pass
Balance SheetDebt to Equity < 50%27.6%Pass
 Current Ratio > 1.31.22Fail
OpportunitiesReturn on Equity > 15%32.5%Pass
ValuationNormalized P/E < 2020.92Fail
DividendsCurrent Yield > 2%3.9%Pass
 5-Year Dividend Growth > 10%46.3%Pass
    
 Total Score 6 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

Ambev pours up an attractive score of 6. As part of an even larger network, the Brazilian beverage maker focuses on one of the fastest-growing regions in the world.

Ambev is a subsidiary of the larger Anheuser-Busch InBev (NYSE: BUD  ) , which itself has had a long and storied history of mergers and acquisitions. Ambev produces a wide range of beers and soft drinks throughout Central and South America, as well as distributing PepsiCo (NYSE: PEP  ) products in Brazil and elsewhere in Latin America.

Thanks to its presence in a growth market, Ambev hasn't seen the same top-line pressure that the recession caused for some of its brewing competitors, such as Molson Coors (NYSE: TAP  ) . Ambev's growth has not only defied Molson's contraction over the past five years to remain positive but also outpaces the growth of Mexican rival FEMSA (NYSE: FMX  ) . And although its Anheuser-Busch InBev parent is saddled with debt, Ambev has a relatively clean balance sheet.

As long as Brazilian growth continues to help the entire continent expand faster than the U.S. and other developed nations, Ambev should continue to grow. Its shares are somewhat pricey right now, but with a good dividend, Ambev might get even closer to perfection in the years ahead.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

18 Apr. 2011

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