BofA Slashes Anheuser Busch Price Target, Casts Doubt On Asian IPO

Anheuser Busch InBev NV BUD plans to IPO its Asia business for debt refinancing, according to Bloomberg.

Rather than floating its segment in the fastest growth region, the company should instead consider a dividend cut, according to BofA Merrill Lynch.

The Analyst

Analyst Fernando Ferreira maintained an Underperform rating on Anheuser Busch InBev and reduced the price target for its Belgian stock from €61 ($69.54) to €57 ($64.98).

The Thesis

An IPO of the Asia business could introduce several additional hurdles for Anheuser Busch InBev, with the primary one being an increase in dependency on future cash flows from the "ailing" U.S. business, Ferreira said in a Wednesday note.

The marginal cost of debt is around 5 percent, rather than the 3.7-percent estimated by the Street, the analyst said. Moreover, the pressure on Anheuser Busch InBev’s EPS continues, and BofA's estimates are 8-10-percent below the Street’s projections, he said.

Chinese beverage and consumer stocks have declined by more than 25 percent in the past six months, which casts doubt on the timing of the IPO, Ferreira said.

Floating the Asia business could mean taking on several problems for a mere $5-10-billion cash raise, the analyst said. Instead, Anheuser Busch InBev could cut its dividends to zero and raise around $4 billion per year, he said.