Anheuser-Busch Inbev
September 14, 2010
Stock price:€42.9
Conclusion: ABI grew faster than peers in H1 thanks to Brazil which played a key role, more than offsetting lackluster growth elsewhere. We look for a more balanced second half, with Brazil slowing down and the US benefiting from easier comps. We see the arbitration ruling between Modelo and ABI as an additional positive development. We raise our valuation range up to €50-€52 per share.
H1 results: Sales up 9.2% to $17.5bn (+3% organic)-EBIT +11%-EBITDA+9.4%-EPS +20%. Guidance 2010: EBITDA growth to accelerate in Q3 and Q4.
Brazil, key contributor to EBITDA growth in H1 (+5.4% organic-+9.4% reported)
-Volume growth (+1.5% H1 +2% Q2) was driven by Latam, notably Brazil, up 15% in H1 (+13.7% Q2) and Argentina in Q2. North America remained weak with shipments in the US down 4.8% in H1 (-3% in Q2). Russia was largely responsible for the decline in Eastern Europe, while Western Europe returned to slight growth in Q2. Growth in China was held back by cold weather and heavy rainfall.
-Latam accounted for 85% of EBITDA growth at constant currency. Forex further boosted EBITDA in H1, mainly due to Brazil.
-ABI set the bases for profitable growth. Cost of sales decreased by 1.3% per hl, while revenue per hl expanded +1.3%, leading to +5% gross profit. Synergies were front loaded, achieving $310m vs $500m forecasted for the year. Administrative expenses fell 11% in H1 (-17.6% in Q2), enabling EBIT to increase despite rising marketing expenses.
Easier comps bode well for H2
-Volume and pricing should improve in the US. Although it is hard to see any improvement, management looks reasonably confident. Shipments in H1 fell faster than sales to retailers (STRs down 2.9%), suggesting that inventory levels are low. CFO expects shipments for the full year to move broadly in line with STRs. Comps in the US will also become easier in Q3 and Q4. Last, mix turned positive in Q2, which looks encouraging for the second half of the year. Management confirmed it will take some price increases in the US.
-Cost of sales should remain under control, expected to be flat or slightly up for the year, helped by positive forex hedging.
-Marketing expenses will face easy comps, notably in Q4. ABI spent almost 30% of its marketing budget last year in the fourth quarter.
-Working capital is expected to release cash in H2 and be positive for the year. We expect EPS to reach $3.01 (+21.5%), net debt to fall to $40bn (3xEBITDA).
ABI trades at 15.3xP/E and 8.2xEV/EBITDA based on our F11 estimates. We expect the stock to further rerate helped by superior earnings visibility. We raise our valuation range up to €50-€52 per share.
Long ABI at time of writing.
