* Undervalued structural growth; adding to the CL, retain Buy rating
Source of opportunity
Combining access to growth and the most advantaged competitive structure
in our European consumer staples sector coverage, SABMiller scores
third-highest on our Competitive Positioning framework. This, and our
assumption that the company reinvests cash in accretive acquisitions, leaves
our FY16 EPS estimate 5% ahead of the Reuters consensus. Since reaching a
peak P/E of 22.4x in May 2013, the shares have de-rated by 20% and now
trade at a discount of 2% (2014E basis) to our European staples coverage
despite the company’s strong positioning and strategic attractions. We add
the stock to the Conviction List and retain our Buy rating.
Catalyst
SABMiller will release its FY14 trading statement on April 15 and FY14 results
on May 22. We expect both releases to demonstrate resilient performance
despite continued tough conditions in both EM and DM. In addition, any
announcement of further acquisition spend may be a catalyst for the shares;
we assume US$45 bn (from US$64.5 bn) of acquisition spend over FY2015-20.
Key risks
1) Weaker-than-expected trading in one of SAB’s main geographies; 2)
further currency depreciation; 3) higher-than-expected input cost increases;
and 4) lower-than-expected cash deployment.