Pick beer over spirits for 2024 investments - but not Bud - Deutsche Bank says

By Barbara Kollmeyer

The coming year should be better for beer investors, though in the near term, they should probably hold off buying more Anheuser-Busch InBev, says Deutsche Bank.

"We expect 2024 to be better due to a combination of easy comparators and input costs," even though brewers have had a disappointing performance this year, said a team of analysts led by Mitch Collett in a note to clients on Monday.

But AB Inbev (BUD) (BE:ABI) was downgraded to hold from buy. Its Bud Light label was hit this year by a conservative-led boycott, following the use of a transgender influencer in its marketing. The shares are up 5% year-to-date.

"We continue to see ABI's broadly EM [emerging market] focused sales exposure as attractive combined with the company's market leading market share positions," said the analysts, adding that its BEES retail and digital commerce platforms offer a "competitive advantage."

However, they cited two metrics used to value a company in their conclusion that Bud is "fairly valued for now." The stock is trading on a 2024 forward price-earning ratio of 17.8 times, an 18% discount to European staples, but a 3% premium to European beverages, while offering a free cash flow yield of 5.6%, they note.

Denmark-based Royal Unibrew (DK:RBREW) was boosted to hold from sell - those shares are down 10% this year. Collett and the team said further downside risk for the stock is unlikely given it now trades at discount to the brewer's historic P/E ratio. Heineken (NL:HEIA) was Deutsche Bank's top beer pick overall in beverages and they also have a buy rating on Carlsberg (DK:CARL.B). But even those shares are down 4% and 8% respectively.

Over the long run, the analysts say distillers or spirits will be a better place to be invested, owing to lower emerging market inroads, share gains in developed markets and expectations consumers will pay more for premium brands.

"However, we believe this long term optimism needs to be balanced against near-term headwinds albeit we believe these headwinds are better reflected in share prices now than they were following two years ofunderperformance," they said.

Brewers and soft drinks will offer more "resilient demand and more input cost benefits," over distillers next year, according to Deutsche Bank, whose economists see a global recession in 2024. With no Group of Seven countries likely to see growth above 0.8%, say spirits are a bigger risk over beer, which is a bigger risk over soft drinks.

The analysts also see some year-ahead tailwinds ahead for a cross-selection of names, following stints of "abnormal softness" in 2023 that should help with comparison performances next year. Those include adverse weather in Europe - benefiting Heineken, Carlsberg , Davide Campari-Milano , Coca-Cola Hellenic Bottling (UK:CCH) and Coca-Cola Europacific Partners (CCEP), a soft Chinese new year and the Bud Light boycott for AB Inbev.

They have buy ratings on Coca-Cola Hellenic and Coca-Cola Europacific Partners, for "defensive growth" and "best-in-class" execution - those shares have gained 12% and 11%, respectively this year. The analysts have a buy rating as well on Campari (IT:CPR), but rate Remy Cointreau (FR:RCO) hold and both Diageo (UK:DGE) and Pernod Ricard (FR:RI) sell.

Campari stock is up 6% so far this year, but Remy Cointreau, Diageo and Pernod Ricard have lost 31%, 23% and 14%, respectively.

-Barbara Kollmeyer

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

12-04-23 1156ET

Copyright (c) 2023 Dow Jones & Company, Inc.