While the sector offers appreciable defensive characteristics, as a whole it remains rather unattractive. Declining volumes, lack of growth, fierce competition, limited pricing power, high levels of debt inherited from aggressive external growth strategies, and so on.
In this landscape, MolsonCoors, which for a time was the leading discounted stock in Zonebourse's quantitative selections, was also favored by our analysts, mainly because of its limited geographic exposure to the North American market.
Unlike its peers, the Chicago-based group has not set out to conquer the emerging markets. Its only major external growth operation was the acquisition of Miller's US operations, after competition authorities forced South Africa's SAB Miller to divest when AB InBev bought it.
Since then, MolsonCoors has generated an average of $1 billion in free cash flow a year, with remarkable regularity and minute variations. Its market capitalization, however, continues to hover around $10 billion, representing a valuation of around ten times profits.
All the more so, given that recent years have seen continuous operational improvement. MolsonCoors' operating margins have been back above the 15% threshold for the last two half-years. Downstream, cash generation has increased, and free cash flow should reach $1.2 billion this year.
As a result, the dividend has risen and sustained share buy-backs are continuing, while financial leverage has been reduced to a very low level of x2 operating profit before depreciation and amortization, or EBITDA. Six years ago, EBITDA was still x4: a measure of how far we've come.
All good news, then, which as we have seen has been timidly reflected in the share price in recent weeks. It's true that reinvestment opportunities remain limited, and the sector's structural difficulties are still with us.
The proof is in the return on equity, which despite recent progress has still not returned to double-digit territory.
