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Heineken considers buying Distell, but is this a good idea?

Here’s what the Human-Factor Score suggests.

Some older and wiser investors say that one should always hold shares in banks, casinos, and companies that produce alcoholic beverages. These are companies that come rain or shine will always make money.

This article is about two alcoholic drinks producers, one onshore and the other one offshore.

I recently found this article (Heineken considers takeover of brewer Distell – Moneyweb) published on Moneyweb on May 18.

In the article, it states that Heineken the second-biggest beer producer in the world is “in talks” about taking over African wine and spirits maker Distell. Distell, as the article reports, is “considering its options”.

Distell is one of those companies all South Africans should be aware of, as it produces brands such as Klipdrift Brandy, Amarula Cream, Savanna cider and Bain’s Cape Mountain Whiskey.

The question therefore is, is buying Distell a good deal for Heineken?

We at Global & Local Asset Management use the “Avoid the Human Factor” strategy to manage our portfolios. The strategy focuses on managing portfolios like an actuary and not a portfolio manager.

The strategy comprises of developing probabilities that indicate the chance of a listed company NOT being able to achieve the growth implied by its current share price.

If we were to view Distell’s Human Factor Score, we would see that our New York associates New Age Alpha, who have developed the Human Factor Score and publish these scores on their website for free, have provided that Distell has a 31.4% probability of NOT being able to deliver the growth implied in its share price.

Hence, if we turn this percentage around, then we can understand that Distell has a 69.6% chance of actually being able to deliver the growth implied by its current share price.

See below:

The response to the question posed above would therefore be that purely based on the Human-Factor Score Distell would be a good deal for Heineken, at its current Human-Factor Score.

We at Global & Local Asset Management do realise that the world of mergers and acquisitions is simply not this easy to navigate through, especially where a listed company is involved, there are of course many other factors to consider in an acquisition of this magnitude.

Neither are we advocating that Distell is a good share for individual investors to buy now or even at a later stage as this article is not about dispensing stock market advice.

What we are illustrating here is how share prices are affected by human behaviour.

As this article in Moneyweb reports, straight after Distell confirmed an earlier report on Bloomberg News that Heineken had approached Distell about this proposed acquisition, the Distell share price jumped as much as 10%, hitting an “intraday record”.

This jump in share price is a good example of how human behaviour has affected Distell’s share price.

The higher the level of human behaviour inherent in the share price, the higher the level of vague and ambiguous information existing in the share price, and the higher the Human Factor Score. The higher the Human Factor Score, the bigger the risk present when purchasing that share.

Distell currently is within the 30 companies listed on the JSE with the lowest Human Factor Scores. Thus again, based purely on the Human Factor Score, the acquisition of Distell by Heineken could be a good deal for Heineken. Although it is possible that the Human Factor Score for Distell may change in the next few days after this news has been taken into consideration.

Stock prices are affected by human behaviour. This creates a risk that investors are not fully aware of, that erodes alpha and that they are not compensated for taking, a risk we call the Human Factor.

Using a probability-based approach to stock selection, we help investors identify and avoid this risk.

The Human Factor Score measures the risk of human behaviour inherent in any company’s share price, the probability takes into account whether the company has provided the growth implied in its share price in the past.

The approach taken by Global & Local Asset Management is not to manage portfolios like a portfolio manager but rather to adopt actuarial techniques to asset management.

If you would like to know more about how the Human-Factor score tool works and how we “Avoid the Losers”, then please contact us at Global & Local Asset Management.

Disclosures

Global & Local Investment Advisors (Pty) Ltd is a registered financial services provider in terms of the Financial Advisors and Intermediary Services Act (FAIS). Global & Local Investment Advisors (Pty) Ltd holds FSP license number 43286.

Global & Local Asset Management (Pty) Ltd. Reg. Number: 2018/580284/07

Global & Local Asset Management is an authorised juristic representative of Global & Local Investment Advisors (PTY) Ltd FSCA License Number: 43286

Any investment performance figures quoted herein are for illustrative purposes only and should not be construed as investment advice.

Investment advice can be provided by Global & local Investment Advisors (Pty) Ltd but only after an analysis has been conducted of the investor’s current financial circumstances and investment portfolio, only then will a recommendation be provided based on that investor’s own circumstances by Global & Local Investment Advisors (Pty) Ltd.

New Age Alpha refers to the New Age Alpha separate but affiliated entities, generally, rather than to one particular entity. These entities are New Age Alpha LLC, New Age Alpha Advisors, LLC (“New Age Alpha Advisors”) and New Age Tau, LLC.

Investment advice is offered through New Age Alpha Advisors, LLC a wholly-owned subsidiary of New Age Alpha LLC.

New Age Alpha Advisors is an investment advisor registered with the U.S. Securities and Exchange Commission. New Age Alpha Advisors, located in the State of New York, only transacts business in those states in which it is properly registered or qualifies for an applicable exemption or exclusion from such state’s registration requirements.

Past performance is not indicative of future results. Current and future results may be lower or higher than those shown. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended and/or purchased by New Age Alpha), or an Index, product, or strategy made reference to directly or indirectly in this firm overview, will be profitable or equal to corresponding indicated performance levels. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. Historical performance results for investment indexes and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance results. Returns for one year or less are not annualised but calculated as cumulative returns.

No client or prospective client should assume that any information presented in this firm overview serves as the receipt of, or a substitute for, personalized individual advice from New Age Alpha or any other investment professional. Any charts, graphs or tables used in this firm overview are for illustrative purposes only and should not be construed as providing investment advice. Information contained herein does not reflect the actual performance of New Age Alpha’s products or portfolios. All research and data is simulated and should not be considered indicative of the skill of New Age Alpha. The research data presented has been calculated by applying each Index strategy backwards in time and is not a contemporaneous record of actual assets managed by New Age Alpha.

All New Age Alpha trademarks are owned by New Age Alpha LLC. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (SPFS). All other company or product names mentioned herein, including S&P®, are the property of their respective owners and should not be deemed to be an endorsement of any New Age Alpha product or strategy. This firm overview is limited to providing general information about New Age Alpha and its investment advisory services. It is for informational purposes only and should not be construed by a client or a prospective client as a solicitation to effect or attempt to effect transactions in securities or the rendering of personalized investment advice. New Age Alpha’s specific advice is given only within the context of its contractual agreements with each client. Investment advice may only be rendered after the delivery of Form ADV Part 2 (an investment advisor’s disclosure document) and the execution of an investment agreement by the client and New Age Alpha. New Age Alpha’s Form ADV Part 2 and descriptions and summary annual reports or its composites are available upon request.

ADVISOR PROFILE

Mauro Forlin

Global & Local Asset Management

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