HSBC Upgrades AB Inbev, Expects SABMiller Deal To Close Mid-2016

• Shares of Anheuser Busch Inbev SA (ADR) BUD have appreciated 21.63 percent over the past three months, trading close to their 52 week high on November 25.
• Anthony Bucalo of HSBC Global Research has upgraded the company from Reduce to Buy, with a price target of €130.
• Bucalo expects the SABMiller deal to close by mid-2016 and offer integration synergoes worth $2.4 billion.

Analyst Anthony Bucalo expects Anheuser Busch to be able to “integrate successfully SAB’s best assets whilst disposing of SAB’s less relevant assets, European ones especially.”

While the acquisition of SABMiller seemed inevitable, given the EM currency issues being faced over the past two years, Anheuser Busch stands to benefit from SABMiller’s initiatives over the years, especially in Africa and Latin America, while inheriting attractive assets.

“We expect good execution with SAB’s Bavaria assets in South America and we expect a divestment of SAB’s Chinese JV stake in CR Snow as well as the possibility of further divestments of SAB’s European businesses,” Bucalo stated.

However, the company’s biggest operational challenge would be in Africa, where Anheuser Busch is “treading into new waters.” Bucalo believes that the success of the merger would eventually depend on how well the company adapts its “regimented operating philosophy” to new markets.

The EPS estimates for 2015 and 2016 have been lowered from $5.22 to $5.01 and from $5.44 to $4.83, respectively.