Monday, May 12, 2014

Constellation Brands (STZ) - what's the likely scenario for the near future (1-5 years)? - Part 1

The Company is a Delaware corporation incorporated in 1972, as a successor of a business founded in 1945. The Company employs approximately 4,500 employees located primarily in the US and Canada.

The Company is the world's leading premium wine company with leading market position in the US, Canada and New Zealand.

The Company is the leading marketer of imported beer in the US through its investment in Crown Imports LLC, a JV (50%/50%) with Grupo Modelo, S.A.B de C.V. (Modelo) pursuant to which Modelo's Mexican beer portfolio (Modelo Brands) are imported, marketed and sold by the JV in the US on an exclusive basis.

The Company has signed a definitive agreements to acquire the remaining  (1) 50% equity interest in Crown Imports for $1.85bln, and (2) Piedras Negras brewery located in Nava, Mexico, perpetual brand rights for Modelo brands currently sold in the US, and other certain other extensions for $2.9bln. The combined $4.75bln beer business transaction is expected to completed by the end of Q1 2014. As a result, the Company will become a third largest producer and marketer of beer for the US market and the largest multi-category supplier (wine, spirits and beer) of beverage alcohol in the US.

During the last 10 years, there have been certain key trends within the beverage alcohol industry, which include:

  • Consolidation of suppliers, wholesalers and retailers
  • An increase in global wine consumption, with premium wines growing faster than value-priced wines
  • Premium spirits growing faster than value-priced spirits
  • High-end beer (imports and crafts) growing faster than domestic beer in the US
To capitalize on these trends and become more competitive, the Company has generally employed a strategy focused on a combination of organic growth, acquisitions and investments in joint ventures and other entities, with an increasing focus on the higher-margin premium categories of the beverage alcohol industry. Key elements of the Company's strategy include:


  • Leveraging its existing portfolio of elading brands
  • Developing new products, new packaging and line extensions
  • Strengthening relationships with wholesalers and retailers
  • Expanding distribution of its product portfolio
  • Enhancing prodcution capabilities
  • Realizing operating efficiencies and synergies
  • Maximizing asset utilization
From 2007 -2011, the Company had complemented above mentioned strategy by divesting certain busininesses, brands, and assets as part of its efforts to increase its mix of premium brands, improve margins, create operating efficiencies and reduce debt. Since completeing that period the Company has acquired the remaining interest in Ruffino in 2012 and Mark West in 2013. Both of these brands are higher margin premiuim wine brands.

The pending beer business transaction will help the Company solidify it's position in the US beer market over the long-term. The transaction is also expected to deiversify the Company's profit base and enhance margins, earnings and cash flow.

Visa (V) - is a steal after a recent price drop?

v  After Visa announced the Q114 results, shares fell to $200. In my opinion it is a reflection of misunderstanding of the results, which also ignores the quality of company’s balance sheet as well as the the growth prospects.
v  Visa has grown net operating revenues in Q1 by 11% YoY, thanks due to robust growth of service revenues, data processing revenues and international transaction revenues.
v  During the quarter the company has repurchased 5.5mln shares at an average price $199.56 using $1.1bln of cash at hand.
v  The company has not debt, no pension obligations or even no preferred stock.
v  Free cash flow for the company at the end of Q1 was $1.6bln, while capital expenditures were $250mln in total(!).
v  In 2008, there were 1.4bln shares outstanding, while at the end of Q1, shares outstanding fell to 656mln shares. Visa is repurchasing about $1.1 billion worth of its stock per quarter, which works out to $4.4 billion annualized.
v  All in all, we can safely state that Visa is growing both organically and repurchasing more and more shares which should have a sizeable effect on per share earnings in the future.
v  An investor with a long term horizon, should definitely have a look at the company this pristine.

April 2, 2017 Astana, Kazakhstan Frist Quarter (Q1) 2017 Update Report Dear Partner, During Q1, the Green Valley Fund (“GV...