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An HSBC analyst upgraded shares of AB InBev SA (NYSE:BUD) to Buy from Hold, increasing the price target to $65 from $64 per share in a note Tuesday.
The analyst pointed to two factors for the upgrade, including easing price points and its “impressive” digital transformation.
“Having lost more than 20% of its value in the past year, we upgrade ABI on valuation, and because revenues and margin pressure should ease into year-end and next year. Our DCF-based TP of EUR65 implies 33% upside,” explained the analyst. “There is momentum to premium growth as the firm is building brands with better marketing and innovation discipline. On-trade recovery and World Cup should help drive the top-line growth momentum in 2H. We model 8.0% revenue growth and 3.5% EBITDA growth for 2022e.”
The analyst added that operationally, pricing actions and premiumization are helping ABI mitigate inflation, while premium brands continue to drive the company’s growth, reporting record high volume in the second quarter.
On its digital transformation, the analyst stated: “Ambev, continues to lead B2B and fin-tech solutions for ABI. Our recent market visits evidenced a fast pace of change. The B2B platform is now active in 18 countries, with c3m monthly active users generating 2m orders every week. ABI is fast collaborating with other brand owners and has more than 100 marketplace partners on its platform.”
He added: “We see ABI and the Coke system as the two major B2B systems racing to move from 40% joint share of wallet toward 80% in Latin America and the competitive moat this implies is not even valued in our DCF.”
The analyst concluded that the company is trading around 25% below its historical average EV/EBITDA multiple, while “the cultural, marketing, and operating turnaround in Ambev is clearer, faster, and easier given the similarity of its markets.”
US-listed shares of AB InBev rose over 2% in early Tuesday trading.
