Here's What Analysts Are Saying About AB InBev Pulling Asian IPO

(Bloomberg) -- Anheuser-Busch InBev NV’s decision to scrap what was slated to be the year’s largest IPO is a bad sign for the pace of its debt reduction and future M&A, equity analysts said, with Macquarie calling it a “a meaningfully negative development.”

The world’s biggest brewer said on Friday that it had decided not to proceed with an IPO of its Asia Pacific unit, citing market conditions. AB InBev’s U.S. depositary receipts fell 3% in U.S. trading on Friday afternoon. The Brussels-listed shares have gained 37% this year, with the prospect of the Asia unit IPO helping it to outperform peers including Heineken NV and Carlsberg A/S.

Liberum said the move was “the right thing to do” if the desired valuation could not be achieved and noted that the plan could be revived if the environment improves. Still, analyst Nico von Stackelberg expects the shares to decline at the start of trading on Monday.

Here’s what analysts had to say about the brewer’s change of plans.

Macquarie, Caroline Levy

(Neutral)

• “Meaningfully negative development,” though the decision may be reflective solely of market conditions rather than any issues with ABI’s Asian operations
• No Asia IPO, for now, means more debt for longer, as IPO had been expected to allow ABI to pay down ~$8b in debt, taking leverage from net debt/Ebitda of 4.6x to 3.7x by late 2019
  • Achievement of ABI’s stated 2x debt/Ebitda target will now take an extra year
• “Cannot rule out another dividend cut”
• Cuts PT for U.S. stock to $87 from $93 and for the European shares to EU78 from EU83. BUD closed at $86.94 on Friday in the U.S. and the Brussels-listed shares at EU78.93

Bernstein, Trevor Stirling

• Expects shares to open at least 2% lower on Monday in Brussels
• Pulled IPO was “certainly unexpected;” unclear whether miscalculation was due to the bankers or due to management’s own expectations that investors would be willing to pay a significant premium
• ABI now won’t delever as much and as quickly as expected; if the IPO had gone ahead, they likely would have reached the target of 4x net debt/Ebitda by the end of 2019. Now they will meet that target by end of 2020
• M&A in Asia “is off the agenda short term”

Liberum, Nico von Stackelberg

(Buy)

• It will now take the brewer “modestly longer” to expand in the three countries it wants to grow in, the Philippines, Thailand and Vietnam. Still, AB InBev will get there and will continue getting bigger
• Says Belgian shares are likely to open lower Monday due to the phasing of deleveraging and arguably higher cost of equity
• “It’s not as if AB InBev won’t keep churning out cash, so I am not worried that they won’t be able to meet their 2020 debt-reduction target, which wasn’t contingent on the Asia IPO”
• Delayed IPO “also may mean that the large transaction that is likely to happen one day, the acquisition of Castel, will take a touch longer”

AlphaValue, Laura Parisot

(Add)

• “The signal is pretty bad as the goal with this IPO was deleveraging;” the net debt/Ebitda target should not be reached and it may be a problem for evaluations of debt agencies
• The company had announced that there could have been potential Asian acquisitions following the IPO. Asia remains very competitive for the group, so it was a really good strategy but it is likely not possible now
• ABI should now focus on cash to control its debt

NOTE: Chief Executive Officer Carlos Alves de Brito said on a call in February that he remains committed to deleveraging AB InBev to around 2x net debt/Ebitda. He said the measure was 4.6x at the end of 2018

To contact the reporter on this story: Albertina Torsoli in Geneva at atorsoli@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Beth Mellor

©2019 Bloomberg L.P.