Global Oil & Gas: Return of Geopolitical Risk
Mixed 3Q23 results; but overall guidance of stable to low growth maintained. Global alcoholic beverage (alcobev) companies’ 3Q revenue generally improved by low single digits, as inflation-led ...
Chief Investment Office - Hong Kong15 Nov 2023
  • Alcobev sales have generally grown on the back of inflation-led pricing uptick; but this tailwind is expected to wane in the coming quarters
  • Sales volume remains under pressure amid soft consumer sentiments in various regions
  • Using 2006’s forward P/E as the baseline for “fair valuation”, companies trading at 1 standard deviation below this level offer attractive entry point for investors
  • Companies with higher Americas and lower Asia Pacific (excluding Japan and India) exposure could see peer-leading earnings growth in the upcoming year
  • Positive on select companies with attractive valuation and well-diversified brands portfolio and geographical mix
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Mixed 3Q23 results; but overall guidance of stable to low growth maintained. Global alcoholic beverage (alcobev) companies’ 3Q revenue generally improved by low single digits, as inflation-led pricing uptick helped to mitigate lower sales volume (which came on the back of soft consumer sentiments, particularly in Africa and Vietnam).

While volumes have picked up in China, it was on the back of reopening led on-trade recovery. Nonetheless, volume bright spots in Americas and India markets remain.

Overall, underpinned by inflation-led pricing uptick, companies are still guiding for stable to low single digit growth for FY23F. But we expect this pricing tailwind to wane over time.

Room for further downside ahead; major alcobev players trading at premium despite higher risk-free rate. Global alcobev companies currently trade at 20.6x forward P/E. This represents a premium compared to the 18.2x forward P/E seen in 2006 even though the prevailing risk-free rate was lower back then. Potential valuation de-rating is on the cards.

That said, select companies with established brands and management track records have already derated beyond 2006’s level as a result of company-specific headwinds. This presents attractive stock picking opportunities.

Using 2006’s average forward P/E as the baseline for “fair valuation” under a higher-for-longer interest rate environment, we believe valuations that are 1 standard deviation below this level will offer attractive entry point for investors.

Preference for players with well-diversified brand portfolios and geographical mix. Based on companies’ guidance, consumers from the US, Latin America, and Japan are expected to stay resilient while consumption in Africa and China will be more conservative in the near term.

Given uneven macro recovery, we believe companies that are highly diversified  geographically and hold a good brand portfolio mix will report stable/growing earnings. In particular, we believe those with higher Americas and lower Asia Pacific (excluding Japan and India) exposure could see peer-leading earnings growth in the upcoming year.

Figure 1:  Global alcobev players’ valuation


Source: Refinitiv, DBS
(Index constituents are 13 largest alcobev companies with >USD1b market cap in 2006 and global sales presence)


Table 1: Company Commentary


Topic

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