Heineken Has Had Another Blow Out Year

| About: Heineken N.V. (HEINY)
This article is now exclusive for PRO subscribers.


Sales, earnings, free cash flow, and the dividend are up.

Buy Holdings, not Heineken.

Heineken is growing organically and through M&A.

Heineken (OTCQX:HEINY, OTCQX:HKHHF, OTCQX:HINKF, OTCQX:HKHHY) has had another fantastic year. Earnings are up, sales are up, free cash flow is up, and the dividend is up.

Heineken has 572.3 million shares and trades at a market cap of €42.3 billion ($46.9 billion). Earnings per share in 2015 were €3.57 and the stock trades at a price to earnings ratio of 20.7. The proposed dividend is €1.30 and the dividend yield is 1.76%.

Sales were €20.511 billion ($22.76 billion), up from €19.257 billion ($21.37 billion) in 2014. Operating profit was €3.381 billion ($3.75 billion), up from €3.129 billion ($3.47 billion). Net income was €2.048 billion ($2.27 billion), up from €1.758 ($1.95 billion). It takes $1.11 to buy one euro.

Free cash flow was €1.692 billion ($1.89 billion) and the free cash flow yield is 4.44%. The balance sheet showed €824 million ($915 million) in cash and €2.873 billion ($3.2 billion) in accounts receivable. This is to €12.6 billion ($14 billion) in debt and €6 billion ($6.7 billion) in accounts payable. A little more debt than I like to see but there are many brands that could be sold to raise cash.

It's as global as you can possibly get. 48.4% of sales come from Europe, 24.4% Americas, 11.8% Asia, and 19.1% Middle East/Africa/Eastern Europe. Other than the flagship brand, other beers in the stable include: Amstel, Sol, Tecate, Dos Equis, Tiger, and Bintang. Shares in Red Stripe were purchased this year and craft brewer Lagunitas. Heineken is growing organically and through M&A.

According to the Annual Report, Heineken is the global leader in cider. I found that surprising. In the past, I wrote on how C&C (OTC:CGPZF, OTCQX:CCGGY)would lose market share to the likes of Heineken. In short, C&C 's stock is down and Heineken's is up.

Heineken Holding holds 50.5% of Heineken. There are 288 million shares and the market cap is €19.04 billion ($21.1 billion). So Holdings trades at a discount to its half of Heineken by 10.9%. The dividend is €1.30 too but the dividend yield is 1.97%. So the price to earnings ratio is 18.4. This is why we prefer to own Holdings instead of Heineken. We are up about 74%, not including dividends. Probably closer to 80% including dividends in our holdings.

Femsa owns 14.935% of Holdings and 12.532% of Heineken. They got shares when they traded out all of the Mexican brands that are in Heineken's portfolio. The Heineken family owns 51.709% of Holdings. My guess is that they'll never sell. Why mess up a good thing?

CEO Jan van Boxmeer told CNBC that the company has miles to grow. He did mention that some oil producing countries like Nigerian may buy less as their economies suffer. The new advertising is brilliant. The premise is to drink less. Good idea. Don't let your customers become burned out on your product and quit.

We've owned the stock for a few years but are not buying at this point. In my opinion, the stock is a little expensive and earnings are high. I'm a value guy. Having said that, it's probably my favorite holding and don't ever plan on selling.

Disclosure: I am/we are long HKHHF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.