Berenberg upgrades AB InBev on 'match made in heaven'

Berenberg downgraded its rating on SABMiller to ‘hold’ from ‘buy’, saying it sees no further upside to the standalone company following Anheuser-Busch InBev’s formal £44 a share offer for the London-listed brewer.

Berenberg upped its price target on the stock to the offer price of 4,400p from 3,920p and said it does not envisage regulatory issues acting as stumbling block to the deal.

It said AB InBev faces regulatory issues in 13 countries. In the UK, Russia and Italy combined share will approach 30% and regulators here may request concessions. However, the potential impact on cost synergies is limited.

The brokerage upgraded AB InBev to ‘buy’ from ‘hold’ and lifted the price target to €143 from €103.

“With a transaction value of £71bn, this represents the largest beer deal ever. The combined company will dominate the beer markets in both North and Latin America and Africa, and we see the transaction being 9%/18% accretive in FY 2017E/18E,” it said.

Berenberg said that not only will the new company be selling one-third of all the beer consumed on the planet, it will do so with an enviable market position in most of the individual markets that matter.

In addition, the group will benefit from the stability that increased geographical diversification can bring – the largest market is the US with 22% of sales – and will also have one of the strongest growth profiles among the large global brewers given its high exposure to emerging markets.

Berenberg said AB InBev was now its top pick in the beverages sector. “Execution risks remains, but AB InBev management has the best M&A track record in the industry.”

It added that with the enlarged company holding more than 50% market share in countries that cumulatively account for 80% of FY 2017E EBITDA, it is possible for the shares to trade on multiples in line with major consumer goods peers such as Nestlé.

At 1103 GMT, SAB shares were down 0.1% at 4,024p while AB InBev was down 0.4% at €112.