* The annus horribilis, 2014 to show stabilisation 2013 was a tough year for European Consumer Staples, with slower growth in both emerging and developed markets (-300 bp and 110 bp, respectively) negative FX moves and belowaverage acquisition spend driving the lowest EPS growth (average 2%) since the financial crisis. We forecast 150 bp improvement in DM growth in 2014, and 80 bp of EM improvement, mostly driven by beer (FIFA World Cup). EM FX remains a risk which we assess in this report.
* Traditional EM concept is obsolete EMs remain the main source of long-term growth for staples; however, the global growth context is rapidly evolving and we introduce our maturity matrix to differentiate between early-stage (eg China, India, Nigeria) and maturing EMs (South Africa, Brazil, Russia, Turkey) as well as early-stage (eg HPC, spirits) and maturing categories (tobacco, beer, CSDs). This flows into our newly introduced CP framework, which provides an objective and transparent framework to appraise the strength of each company’s operations against global peers.
* The investment themes for 2014 In an uncertain growth environment, we think dominant companies operating in consolidated markets will be better placed to mitigate the risk of potentially greater competitive activity in 2014. We favour the following themes: (1) attractively valued DM exposure, with the potential to see an inflection in growth and lower FX risk; (2) oversold EM assets with long-dated robust organic growth and dominant positions; and (3) M&A beneficiaries, where attractive conditions are likely to drive a more than doubling of 2013’s level of M&A this year (GSe US$46 bn in 2014 vs. US$19 bn in 2013).
* Top picks L’Oreal, SAB, Pernod, Imperial We add SABMiller to the Conviction Buy List, joining L’Oreal, Pernod Ricard and Imperial Tobacco (all CL-Buy) as our top picks. We upgrade Reckitt Benckiser to Buy from Neutral, and ABInBev to Buy from Sell. Campari moves up to Neutral from Sell and we downgrade Beiersdorf to Sell from Neutral. We remain Sell-rated on Carlsberg, Oriflame, ABF, Suedzucker, Agrana, Kerry and CL-Sell on Dairy Crest.