CCU Downgraded By Citi Due To Slow Sales

Compania Cervecerias Unidas S.A. (ADR) CCU is witnessing slower sales growth in Chile and Argentina, Citi’s Alexander Robarts said in a report. He downgraded the rating on the company from Buy to Neutral, while reducing the price target from $25.50 to $24.50.

Accelerating growth in non-alcoholic beverages in Chile is being more than offset by worse weather and more modest beer price increases. Moreover, CCU is facing tough volume comps and weak consumption in Argentina, analyst Robarts mentioned.

These factors are more than offsetting the positive impact of the stronger Chilean peso estimate on dollar COGS. Robarts added that CCU would record lower y/y margin expansion despite the ongoing McKinsey efficiencies.

Other Factors Working Against The Stock

CCU’s shares have gained 16 percent over the past six months, making them less attractive on a historical basis and relative to global beer peers, the analyst commented.

“In M&A, given the capex and investments needed for the Colombia JV (2H17) and the ECUSA plant (2H18), a meaningful deal is unlikely in the medium term, in our view… Finally, we note recent local news reports (Que Pasa) suggesting Quinenco may be interested in selling its co-control stake in CCU,” the Citi report stated.

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