HEINEKEN : Tough short term momentum but LT case intact
Heineken’s short term earnings momentum is significantly impacted by the global outbreak of the COVID-19 virus, with lockdown measures in many counties having a big impact, mainly on the on-trade side of the business. We forecast an overall drop of volumes of around 8.2% in 2020 and a 17.1% organic operating profit (beia) drop, with 2Q taking the biggest quarterly hit. We do expect business could quickly recover once the COVID-19 virus is contained and lockdown measures are loosened. Valuation on our normalized 2021 forecasts is attractive (with a P/E21e multiple of 17.4x and a FCF yield21e of 6.9%), although we do clearly favour AB Inbev at this stage given its lower valuation. We expect share prices could remain volatile in the short run, but see significant upside when governments announce relaxation of lockdown measures and the on-trade opens up again. We admit that visibility on that timing is difficult, but nevertheless stick to our Accumulate rating on Heineken with a target price of € 105.Heineken is an international brewer and engaged in the production and distribution of beer brands in 178 countries. Co. is committed to the marketing and consumption of its more than 250 international premium, regional, local and specialty beers and ciders. These include Heineken®, Amstel, Anchor, Biere Larue, Bintang, Birra Moretti, Cruzcampo, Desperados, Dos Equis, Foster's, Newcastle Brown Ale, Ochota, Primus, Sagres, Sol, Star, Strongbow, Tecate, Tiger and Zywiec. In addition, Co. is the cider maker with brands such as Strongbow® and Bulmer's®. Some of its wholesalers also distribute wine, spirits and soft drinks.
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