Stock price: €42.9 ($55.09)
Conclusion: Anheuser-Busch Inbev (BUD) 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 arbritation 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 (+3.1% organic)-EBIT +11%-EBITDA +9.4%-EPS +20%.Guidance 2010: EBITDA growth to further 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 essentially 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% Q2). Russia was largely responsible for the decline in Eastern Europe, while Western Europe returned to 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 impact further boosted EBITDA by 8.3% in H1, mainly du to Brazil.
- ABI set the bases for profitable growth. Cost of sales decreased by 1.3% per hl, while revenue per hl grew +1.3%, leading to +5% gross profit. Administrative expenses fell 11% in H1 (-17.6% in Q2), enabling EBIT to increase 7.2% despite rising marketing expenses (+7.6% H1 +10% in Q2). Synergies were front loaded, achieving $310m in H1 vs $500m forecasted for the full year.
Easier comps bode well for H2
- Volume and pricing should improve in the US. It is hard to see any improvement in the US. Nevertheless, shipment volumes in H1 fell faster than sales to retailers (STRs down 2.9%), suggesting low inventory levels. Shipments for the full year should be broadly in line with STRs. US comps will also be easier with sales down 4.7% and 2.6% in Q3 and Q4. Mix improved in Q2 which is encouraging for H2 and should help to drive growth in revenue per hl. Management confirmed it will take price increases in the US.
- Cost of sales should remain under control. COS could be flat or slightly up for the year, helped by positive forex hedging in H2.
- Marketing expenses will benefit from easy comps, notably in Q4. ABI spent almost 30% of its budget last year in the fourth quarter.
- We look for $13.4bn EBITDA and $4.8bn net earnings and EPS to reach $3.01 up 21.5%.
- Working capital should release cash in H2 and be slightly positive for the year. We expect FCF to exceed $6bn, net debt to fall to $40bn, representing 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 its superior earnings visibility. We raise our valuation range up to €50-€52 per share.
Disclosure: Long ABI at time of writing.