The coming year should be better for beer investors, though in the near term they should probably hold off on buying more Anheuser-Busch InBev, says Deutsche Bank.
“We expect 2024 to be better due to a combination of easy comparators and input costs,” even though brewers have had a disappointing performance this year, said a team of analysts led by Mitch Collett in a note to clients on Monday.
But AB InBev
BUD,
ABI,
was downgraded to hold from buy. Its Bud Light label was hit this year by a conservative-led boycott following the use of a transgender influencer in a marketing campaign.
Shares are up 5% to date in 2023.
“We continue to see ABI’s broadly [emerging-markets-focused] sales exposure as attractive combined with the company’s market-leading market-share positions,” said the analysts, adding that the company’s BEES retail and digital commerce platforms offer a “competitive advantage.”
However, they cited two metrics used to value a company in their conclusion that the brewer is “fairly valued for now.” The stock is trading on a 2024 forward price-earning ratio of 17.8, an 18% discount to European staples but a 3% premium to European beverages, while offering a free-cash-flow yield of 5.6%, they note.
Denmark-based Royal Unibrew
RBREW,
was boosted to hold from sell — its shares are down 10% this year. Collett and the team said further downside risk for that stock is unlikely given that it trades at discount to its historic P/E ratio.
Heineken
HEIA,
HEINY,
was Deutsche Bank’s top pick overall in beverages, and it also has a buy rating on Carlsberg
CARL.B,
But even those stocks are down 4% and 8%, respectively.
Over the long run, the analysts say distillers or spirits makers will be a better place to be invested, owing to stronger emerging-markets inroads, share gains in developed markets and expectations that consumers will pay more for premium brands.
“However, we believe this long-term optimism needs to be balanced against near-term headwinds, albeit we believe these headwinds are better reflected in share prices now than they were following two years of
underperformance,” they said.
Brewers and soft drinks will offer more “resilient demand and more input-cost benefits,” compared with distillers, next year, according to Deutsche Bank, whose economists see a global recession in 2024. With no Group of Seven countries likely to see growth above 0.8%, spirits are a bigger risk than beer, which is a bigger risk versus soft drinks.
The analysts also see some year-ahead tailwinds ahead for a cross-selection of names, following stints of “abnormal softness” in 2023 that should help with comparison performances next year. Those include adverse weather in Europe — benefiting Heineken, Carlsberg, Davide Campari-Milano, Coca-Cola Hellenic Bottling
CCH,
and Coca-Cola Europacific Partners
CCEP,
— a soft Chinese new year and the boycott targeting AB InBev over Bud Light’s marketing campaign.
They have buy ratings on Coca-Cola Hellenic and Coca-Cola Europacific Partners, for “defensive growth” and “best-in-class” execution — those shares have gained 12% and 11%, respectively, this year. The analysts have a buy rating, as well, on Campari
CPR,
but rate Remy Cointreau
RCO,
hold and both Diageo
DGE,
DEO,
and Pernod Ricard
RI,
sell.
Campari’s stock is up 6% so far this year, but Remy Cointreau, Diageo and Pernod Ricard have lost 31%, 23% and 14%, respectively.
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