Yum! Brands, Inc. (YUM), Diageo plc (DEO), PepsiCo, Inc. (PEP): The Next Asian Bubble?

Page 1 of 2

Asia is clearly the big growth story these days, and for good reason. However, with every growth story there are, invariably, excesses that take place. One that’s “brewing” in the region today is beer and spirits. With the prices being paid in recent transactions, it looks like some companies will require impressive growth from the region to make their deals work out.

Asia

The big story in Asia is China. Clearly that country is going through an industrialization that has moved it well beyond its largely agrarian past. The transition has been difficult at times, and will likely continue to be so for the near future, but, overall, citizens are increasingly entering the so-called middle class.

That’s an important milestone financially, because it means that an increasing number of citizens have disposable income. Having lived through the West’s industrial revolution, what those new middle class folks will do with their money is pretty clear—they will spend it. How, exactly, they choose to spend will be different in many ways, but it will rhyme well enough for companies to take advantage of the growth potential.

Of course China isn’t the only nation in Asia, and others are either following along on China’s coattails or are ahead, often well ahead, of the giant country in their efforts to become developed nations. However, until recently, many investors and plenty of companies simply didn’t dare tread in Asian waters. China’s advance has materially altered that dynamic.

Yum! Brands (YUM) Never Expected Being Slapped With a Rubber ChickenThe Next Bubble

One important habit change as people inch up the socioeconomic scale is to eat better. This includes such things as eating out more often, which companies like Yum! Brands, Inc. (NYSE:YUM) and McDonald’s Corporation (NYSE:MCD) hope to take advantage of, but it also includes eating better. Rice and beans can provide carbohydrates and protein, but rice and beef (chicken, pork, etc.) tastes better to a lot of people.

Drinking habits are similar, with beverage companies like PepsiCo, Inc. (NYSE:PEP) and The Coca-Cola Company (NYSE:KO) aggressively expanding to take advantage of the trend. Simply put, the more you make the more prepackaged drinks you tend to consume in a year. Beer and spirits is another industry that will see increased sales. Though these beverages always seem to have strong underlying demand, consumers often trade up to higher prices fare when they have more money to spare.

In fact, with the purchase prices being paid for some Asian alcohol companies, this area is looking particularly bubble like.

Paying Too Much

Bloomberg recently ran an article highlighting that merger and acquisition, and joint venture activity in Asia is heating up. Deepa D’Souza, a consultant with Indian firm Mintel, summed up the problem when she told Bloomberg, “…There are not enough suitable assets available and so there is a race to pick up whatever is around…” That sounds like a recipe for disaster for the purchasing companies that get caught up in a feeding frenzy.

For example, Heineken recently paid what appears to be among the richest valuations ever for an Asian brewer when it agreed to buy a controlling stake in Asia Pacific Breweries. The nearly $6.5 billion deal is about 35 times earnings. While the industry is likely to see growth, beer typically isn’t a high margin business in the region, making 35 times earnings a pretty risky multiple.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!