Enrique Abeyta’s presentation on Anheuser Busch Inbev at the Kase Learning conference on short selling, 5/3/18.
Q1 hedge fund letters, conference, scoops etc, Also read Lear Capital: Financial Products You Should Avoid?
One of the interesting things that I found having gone from being an investor and a shorts short focused investor for 25 years and moving over to the operating side is you know very much the people in this room we live at a very high level almost a macro level even as deep as we ever get in terms of doing research. We’re not really all that deep versus people that actually have to go and run companies. So it was it’s been a very interesting experience getting and actually running a digital media company after having been an investor in media both on the public and private side for 20 plus years and getting the insight and being able to combine that with the the macro insights that that we had previously. The example that I use and I stole this from the film The Matrix. You may remember the point in the first Matrix movie where he asks him does he want to take the red pill or the blue pill. And he takes the red pill and all of a sudden he sees all these crazy numbers and begins to understand the matrix. I would say it’s actually been a very interesting experience for me to go from being a macro investor and stock focus. But again when you’re making stock investments you fundamentally are a macro investor as opposed to an operator. But the insights that I’m able to combine from that background with now being working in operations of an actual company are quite unique.
So the stock I’m going to pitch today it’s actually along a theme which is the ability of new digitally enabled disruptive companies to disrupt incumbents in media and consumer products sorry long sentence. And we’re going to focus in particular on Budweiser all the later on I’ll talk a little bit about Kraft Heinz and even Disney. I’m going to start with actually a little bit of a disclaimer and I’m going to compliment the owner of the company I’m about to pitch short. He was in an interview three days ago Jorge Paulo Lemann from 3G and he actually acknowledged many of the things that we said here. What’s interesting to me though is I’m not sure that that will actually be enough to make this not still be a attractive short and certainly a good alpha generation short in my 25 years of short selling. One of the things I learned to do was stay alive. And so what I’ve seen is the evolution of the business where the frauds that we saw in 96 97 98 have mostly disappeared. That happened because of the Internet information disseminated much more quickly. There’s many more investors looking at everything. And so we begin to move a lot of our short selling focus towards more structurally challenged businesses and combining our portfolio with a balance of structural shorts that we felt very confident where we can manage the risk and would produce great absolute return and high alpha generation. And then putting a portion of the portfolio in higher returns sort of fraud type situations Budweiser very much fits this category. And I apologize there’s air there I should say not. Here’s what I’ll tell you about Budweiser. It’s not getting bought out yeah I guess die is or what. It turned into you know Budweisers not getting bought out.
You will not be squeezed in Budweiser. There will not be a big product announcement where Budweiser will be up 30 percent and believe it or not people actually care about the numbers on Budweiser as opposed to Tesla extremely liquid stock. So when I look at this I say hi. If I’m going to have a short book with some high vol and some low vol this isn’t a very attractive name for me. Now the story of Budweiser I think you all know quite well and they’ve done a tremendous job of value creation since 3G bought it in 2008. But I’ll summarize it quite quickly what they did is they have the insight that we could take stable low growth stable businesses they could acquire them using a great deal of leverage and then cut costs aggressively to create very high equity returns. That has worked through the past 10 years. The problem is that exact strategy was what was done in the newspaper industry for instance across the the 2000s newspapers publishing etc. And the issue they ran into was that the perceived stable low growth industry turned out to perhaps not be a perceived or not to be in reality a stable low growth industry. As you saw technology begin to enable disruptive businesses and this is indeed what we think is is beginning to happen here with Budweiser and that we think is going to accelerate in a dramatic fashion. You know recall to hear one of the key points on this slide is the net debt to a dollar four point two times by the way that only falls about point three point four point three five of a turn.