MOLSON COORS CANADA INC. (Toronto symbols TPX.A $85 and TPX.B $85; Conservative Growth and Income Portfolios, Consumer sector; Shares outstanding: 185.3 million; Market cap: $15.8 billion; Price-to-sales ratio: 3.3; Dividend yield: 2.0%; TSINetwork Rating: Average; www.molson coors.com) is the world’s fifth-largest brewer by production volume. Its main brands include Coors Light, Molson Canadian and Carling.
Overall beer consumption in North America has declined in the past few years, mainly because baby boomers are switching to wine and spirits.
Moving beyond North America
In June 2012, the company paid $3.5 billion for StarBev, which owns nine breweries in central and eastern Europe (all amounts except share prices and market cap in U.S. dollars).
Europe (including the company’s Carling operations in the U.K.) now supplies 53% of its total sales, followed by Canada (43%) and other countries, excluding the U.S. (4%).
In 2007, Molson Coors merged its U.S. brewing operations with those of rival SABMiller. Molson Coors owns 50% of this venture but is only entitled to 42% of the profits. As a result, it does not consolidate MillerCoors’ sales with its wholly owned operations.
Thanks to StarBev, Molson Coors’ sales jumped 38.7%, from $3.0 billion in 2009 to $4.2 billion in 2013. Earnings fell 6.6%, from $3.81 a share (or a total of $707.4 million) in 2009 to $3.56 a share (or $666.9 million) in 2010. That’s because the 2009 results benefited from an unusually low tax rate. Earnings rebounded to $3.95 a share (or $721.1 million) in 2013, thanks to StarBev.
Joint venture keeps finding savings
Cost cuts are also contributing to the higher earnings. The company’s share of savings from the MillerCoors joint venture totalled $47.5 million in the first nine months of 2014.
That’s helping Molson Coors repay the cash it borrowed to buy StarBev. As of September 30, 2014, its total debt was $3.15 billion, or a moderate 23% of its market cap, down 3.8% since the start of the year.
The stock is up 43% since the beginning of 2014, largely due to speculation that the world’s largest brewer, Anheuser Busch Inbev SA, may launch a takeover bid for SABMiller. If SABMiller agrees to a deal, it will probably have to sell its controlling stake in MillerCoors to Molson Coors to comply with U.S. antitrust regulations.
Reasonable multiple after big gain
Even after this gain, the stock trades at a reasonable 17.3 times the $4.28 a share the company should earn in 2014. The $1.48 dividend yields 2.0%.
The B shares have less voting power to elect directors than the A shares, but are more liquid and receive the same dividend.
Molson Coors B is a buy.
