Stock price: €24.8/$32.7
Conclusion: Cost savings coupled with de-leveraging leave room for further rerating (15%+).
2009 Q1 results (US$): Revenues up 4.7% like for like, down 7% reported (vs pro forma 2008). Margins up 510 bp. Management confirmed $1bn synergies from AB, working capital inflow of $500m in the US, $7bn divestitures plan.
Top line growth continues to be held back by weaker demand. However, ABI’s geographic exposure is well balanced and the company performed much better than Carlsberg in Q1. Own beer volumes were up 0/5% thanks to Brazil (+7/6%) which offset declines in volume in Western Europe (-8/3%) and in Russia (-9%). The US market remained slightly positive. The operating landscape should remain challenging for the rest of the year. However, ABI’s equity story is driven by bottom line. ABI will focus on integrating AB business and de-leveraging the company. ABI achieved $295m of synergies in Q1 and confirmed $1bn for the year. EBITDA margin increased by 540bp in Q1, we expect a 250bp gain for the year, as comparison will be increasingly difficult . Both cost of sales and operating expenses should help to boost margins. Management will continue to execute $7bn in divestitures. Assuming FCF of $5.9bn and $2/7bn of disposals we estimate net debt/EBITDA to fall to 4x by the end of 2009.
ABI trades at 13x 2009 estimates and 7/3x EV/EBITDA. The stock is up 50% YTD, but still down 51% in one year. The company will launch a level 1 ADR program which will facilitate ownership of the stock in the US .We expect management to continue to deliver and the stock to further re-rate.