World: Analysts upgrade their rating for Heineken NV as near-term risks are now seen as balanced

Analysts at Barclays have upgraded their rating for Heineken NV to 'equal-weight' from 'underweight' as they now see the "near-term risks as balanced" for the Dutch brewing giant following a recent Capital Markets Day (CMD) update, ProactiveInvestors.co.uk reported on January 4.

In a note to clients, the Barclays analysts said: "We were positively surprised by the extent to which Heineken had made progress in its digital capabilities. At its recent CMD, Heineken confirmed that c.60% of its business is already digital, which is much higher than our previous expectations, and more importantly broadly in line with its key competitor AB InBev (57%)."

The analysts also said that since their downgrade to 'underweight' in March 2022, "four of the six downside catalysts have come to fruition".

They noted that: "As expected, Heineken withdrew its FY23E 17% EBIT margin target. We estimate its new +MSD-HSD% OPG guidance for FY23E is attainable, with company consensus already above the top end of this range (+8.6%)."

The analysts added: "We expected Nigeria’s macro environment to become progressively worse given increasing affordability issues and the country’s significant exposure to Russian and Ukrainian food imports. At its 3Q22 results, Heineken’s Nigeria volumes declined -HSD%, with the company highlighting increasing affordability pressures on lower-end consumers."

They also pointed out that: "Given Heineken’s UK pub portfolio and EU wholesale business, we saw the company as most exposed to an EU consumer slowdown. This became evident at 3Q22, with EU volume declines a key driver in the company’s organic volume miss."

Lastly, the analysts noted that Heineken's valuation premium has eroded, saying: "In June 2022, Heineken was trading at a +20% premium to its EU brewer peers. As a result of the above factors, and more robust underlying trading from AB InBev and Carlsberg, Heineken now trades in line with Carlsberg and at a slight discount to AB InBev, which we view as more reflective of our current outlook."

The Barclays analysts said they see "potential for margin expansion in 2H23E and FY24E as COGS inflation reverses" and ahead of Heineken’s FY22 results due on 15 February 2023 they have updated their estimates.

"Whilst our FY22E organic estimates remain broadly unchanged, we tick up our FY23 forecasts to reflect higher pricing assumptions," they said, and concluded: "As such, we upgrade Heineken to Equal Weight with a new price target of €90 (from €86)."

Of the European brewers, the analysts said they prefer NYSE-listed Anheuser-Busch InBev, for which they see near-term upside from Latin America and deleveraging, and Denmark's Carlsberg A/S, which they believe can sustainably outperform its SAIL’27 target.

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