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Author: nonzerosum One star, 50 posts Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 17  
Subject: HINKY catalyst? Debt concerns? Date: 1/4/2012 10:00 PM
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Thanks for this rec. The value looks good, nice FCF and both debt and stock reductions.

Main question is what catalyst will make the market realize the value? I would think you're not expecting a European fix anytime soon. Organic growth has been negative recently, so perhaps its growth from emerging markets (that you mention)? However, the folks at Global Growth were cheering when FMX sold its beer, so I'm not sure.

Also, on the debt, did you look at when the maturities are coming? I think one risk for Euroland is higher interest rates and those could put a dent in the FCF.

tj.
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Author: TMFMattyA Big red star, 1000 posts Old School Fool Supernova Odyssey 1
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Subject: Re: HINKY catalyst? Debt concerns? Date: 1/6/2012 10:09 AM
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Hi tj,

Great questions. I think there are two things that need to happen for there to be a real catalyst for the stock: (1) The Euro fears have to subside to a larger degree and (2) Heineken needs to pay down about 25% more of its debt. If both those things happen, I see Heineken eventually being valued more in-line with its industry peers: 2x sales, 15x free cash flow. That alone would send the stock 50% higher.

The FEMSA acquisition (and the S&N acquisition eventually) will help Heineken sustain growth in the low-single digits. That may not sound exciting, but with the moves management is making to streamline costs, that could easily translate into 10%+ operating profit growth -- especially if energy and commodity costs stay flat or come down a bit.

So put together modest profit growth with a higher multiple to FCF, and I'm confident Heineken can be a solid market-beater from here.

As for your other question, I'm not too worried about Heineken's debt situation (just the size). They do have a big slug of debt ($2.0bn+) coming due in 2013, but the rest will come due from 2014-2018. And rates on most of Heineken's debt is in the 5 - 6% range -- more than manageable.

Thanks for checking out our Streetfighter portfolio. More picks to come!

Matt A.

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Author: nonzerosum One star, 50 posts Old School Fool CAPS All Star Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11 of 17
Subject: Re: HINKY catalyst? Debt concerns? Date: 1/6/2012 2:02 PM
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Thanks for checking out our Streetfighter portfolio. More picks to come!
Good to hear - I'm in all of them except UPL and like your articles. Also good to see you climbing the rankings, only 3 more to go!
tj

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Author: 3Fairfield Three stars, 500 posts Ticker Guide SN Explorer 1 Mission Team Member Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 15 of 17
Subject: Re: HINKY catalyst? Debt concerns? Date: 3/14/2012 9:15 PM
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Matt,

I appreciate your analysis on Heineken and even bought some stock last week because I think it's undervalued too. And it's a way to participate in emerging market growth and maybe get some benefit in value when the European crises get under control (whenever) and that market gets back on track.

But now, speaking of debt, I read that HINKY released a bond issue this week and I wonder what that means for the balance sheet?

Some seem to say it's good because the debt restructure is favorable. I don't really understand corporate debt very well and of course Heineken's corporate structure is not very 'transparent' so for me it's hard to tell if this issue is a good thing or not.

Do you have any thoughts on this?

Thanks. J.

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