CITI: These 19 Companies Are Going To Make A Fortune From Global Growth

Growth in the emerging markets has slowed down recently as growth in the developed markets have picked up.

Nevertheless, growth in the emerging markets is still higher, and they present attractive investing opportunities.

Citi analysts recently published a massive report highlighting the best global companies capitalising in these markets.

“We expect that many of our companies will still be able to generate stronger rates of top line growth in emerging markets when compared to developed markets owing to (i) relatively strong economic growth in these countries, (ii) increasing per capita penetration / usage of consumer staples products by consumers in these markets and (iii) broadening geographic distribution of branded consumer staples products within these regions.”

In their report, Citi analysts have complied a list of their favourite companies for outsized growth in emerging markets. Click on the slide show to see the list.

The Coca-Cola Company

Industry: Beverage, non-alcoholic

Region: U. S.

Ticker: NYSE: KO

Revenue (annual report): US$ 46.854 billion (2013)

The Coca-Cola Company has a significant exposure in emerging markets; approximately 75% of their profits in 2013 came from overseas. Coca-Cola's breadth of product offering -- including bottled water, tea, coffee, and juice -- partially contributes to its major international success.

Citi analyst Wendy Nicholson also notes that because the Coca-Cola Company entered the Latin American market earlier and in a bigger way than PepsiCo did, it now 'commands very strong market shares and in turn, very high profit margins'.

Source: Citi

Arca-Contal

Industry: Beverage, non-alcoholic

Region: Latin America

Ticker: BMV: AC

Revenue (annual report): PS 60.359 million (US$ 4.66 million) (2013)

Arca-Contal derives almost 40% of its consolidated EBITDA from northern Mexico, which has the highest per-capita soft drink levels in the country. Additionally, despite a 'challenging operating environment', Arca operates in the rapidly growing and highly profitable Ecuadorean franchise and in Argentina -- which are seeing double digit EBITDA growth.

Citi analyst Alexander Robarts adds that Arca-Contal's recent acquistion of processed dairy assets in Ecuador, Toni, is an additional area of attractive non-organic growth. Now, Arca-Contal is the 5th largest company in the country.

Source: Citi

Mengniu Dairy

Industry: Beverage, non-alcoholic

Region: China

Ticker: SEHK: 2319

Revenue (annual report): US$ 2.04 billion (2013)

Citi's pick for Chinese non-alcoholic beverages is Mengniu Dairy. They add that concern on import UHT milk is 'overdone', and that Mengniu has a chance to 'invest in Arla branding for market share'.

Citi analysts believe that China raw milk prices will probably 'decline to a level where cycle average prices are cost plus farm's normal profit'. If this happens, Jasmine Bai writes that 'Mengniu's volume growth may accelerate, with cost delcine as well as ASP decline/promotion increasing'. Consequently, they believe margin will benefit.

Source: Citi

Suntory Beverage and Food

Industry: Beverage, non-alcoholic

Region: Japan

Ticker: TYO: 2587

Revenue (annual report): ¥ 1.121 trillion (US$ 11 billion) (2013)

Among specialty soft drink companies in Japan, Citi writes that Suntory Beverage and Food has gone 'the farthest in terms of overseas operations'. They have focused on Southeast Asia, which is seeing particularly strong growth.

Nobuyoshi Miura, Citi analyst, adds that sales of SBF have been growing faster than the market average in Japan. In the last year, SBF has launched 'high value-added and high-priced products authorised by the Consumer Affairs Agency in Japan as being beneficial to health' which has resulted in sales mix improvement.

Source: Citi

Diageo

Industry: Beverage, alcoholic

Region: Europe

Ticker: DGE.L

Revenue (annual report): £ 15.487 billion (US$ 26.58 billion) (2013)

Andrea Pistacchi, Citi analyst, writes that Diageo is placed 'to capture the lion's share of EM growth in spirits because it has the strongest route-to-market and broadest portfolio in most EM regions, except China and Eastern Europe'.

Pistacchi adds that they see four long-run opportunities for Diageo including international spirits in Africa, route-to-market enchancements in Latin America, portfolio premiumisation in India, and sales and margin expansion in South East Asia.

Source: Citi

Mead Johnson

Industry: Food

Region: U.S.

Ticker: NYSE: MJN

Revenue (annual report): US$ 4.2 billion (2013)

Citi writes that they favour packaged food groups with the 'most significant emerging market exposure' because it provides for 'better long term growth potential given rising incomes and a shift in consumer preferences towards packaged food items amongst much of the developing world'.

Over 70% of sales for Mead Johnson -- infant formula producer -- are in emerging markets, including China (which accounts for 31% of the total company sales). Most importantly, although China is the biggest market, Citi analyst David Driscoll writes that they 'estimate that less than 20% of Chinese infants are on formula, with the majority of the infants in the country still breastfeed(ing)'. As a result, there is significant room for further growth, especially because of the rising middle class.

Source: Citi

Unilever

Industry: Food

Region: Europe

Ticker: LSE: ULVR

Revenue (annual report): € 49.8 billion (US$ 68.0 billion) (2013)

Unilever has the most emerging market exposure out of the major European food companies. Despite recent deceleration in its emerging market business, Citi writes that Unilever is 'well positioned to capitalise' because the long-run structural drivers of emerging market growth, including population growth, further urbanization, and real wage growth, 'remain intact'.

Source: Citi

Brasil Foods

Industry: Food

Region: Latin America

Ticker: NYSE: BRFS

Revenue (annual report): R$ 30.521 billion (US$ 13.78 billion) (2013)

Citi analyst Alexander Robarts writes that they have 'recently adopted a more constructive view for the Brazilian protein processors' because they are 'entering an attractive stage of development characterised by four key factors: 1) new senior management (...), 2) incremental productivity gains and/or synergies; 3) focus on financial deleveraging and working capital managment (...), and 4) dollar operating leverage of depreciating'.

Additionally, he writes that Citi recently increased its target price on Brasil Foods and reiterated the Buy rating, 'reflecting a higher export margin expected for this year'.

Source: Citi

Tingyi

Industry: Food

Region: China

Ticker: SEHK: 0322

Revenue (Yahoo finance): US$ 11.07 billion (2013)

Citi analyst Jasmine Bai writes that they 'believe margins will increase over three-to-five years for the China instant noodle companies'. Additionally, although the China instant noodle category is a duopoly, they believe that 'the price competition depends on Tingyi's decisions'.

Additionally, Citi analysts like Tingyi's intiatives of innovation and non-fired noodle launch. A change like that reflects an effort for new products innovation to drive sector demand and gain pricing power, rather than just 'taking existing products' market share'.

Source: Citi

Ajinomoto

Industry: Food

Region: Japan

Ticker: TYO: 2802

Revenue (annual report): ¥1.172 trillion (US$ 11.5 billion) (2013)

Citi's number one pick for Japanese food is Ajinomoto for three reasons. First, there has been an upturn for two and a half years in the global price for lysine for animal feed, and because Ajinomoto is third globally in lysine production it will benefit. Secondly, there is 'substantial growth potential' in high value-added lysine for dairy cattle, and Ajinomoto is planning a 10x boost to production capacity by 2016. And third, there is continued rapid growth in the overseas food business. According to Citi, not only is Ajinomoto venturing into the U.S., but it has also 'obtained patents in major countries' and see looking to developing markets in Europe and Oceania.

Source: Citi

Procter & Gamble

Tide

Industry: Home and Personal Care

Region: U.S.

Ticker: NYSE: PG

Revenue (annual report): US$ 84.17 billion (2013)

Citi analyst Wendy Nicholson writes: 'Proctor and Gamble's efforts in emerging markets make it a better 'play', owning in part to the fact that the big categories in HPC (Home and Personal Care) are growing at a faster clip in emerging markets vs. developed markets and (Proctor and Gamble) is expanding its business in them'.

Proctor and Gamble's high profile efforts include launching toothpaste in India and local manufacturing of oral care in Brazil.

Source: Citi

Beiersdorf

Industry: Home and Personal Care

Region: Europe

Ticker: FWB: BEIG

Revenue (annual report): € 6.141 billion (US$ 8.38 billion) (2013)

Citi analyst Toby McCullagh writes that Beiersdorf 'is the most reliant on' its emerging market operations to achieve 'rich organic growth expecations' because the emerging markets are driving greater than 80% of the company's organic sales growth this year.

Furthermore, Beiersdorf is one of the only companies that Citi covers that has a 'recovery story playing out' in its developed market arena. Because the emerging market growth seems to be slowing down 'modestly', having a strong developed market sector will help out Beiersdorf.

Source: Citi

Hengan

Industry: Home and Personal Care

Region: China

Ticker: SEHK: 1044

Revenue (Yahoo Finance): $USUS 21.19 billion (2013)

Hengan's sanitary napkin business 'is still strong in sector consolidation, but tissue margins still need to decline and diapers may continue to lose market share', according to Citi analyst Jasmine Bai.

However, she writes that Citi believes that 'Hengan has been able to gain young customers through its brands' and that they expect 'Hengan sanitary napkin segment profit growth at c. 20% driven by sales in the next two years'.

Source: Citi

Marico

Industry: Home and Personal Care

Region: India

Ticker: BSE: 531642

Revenue (annual report): US$ 710 million (2013)

Marico is changing its business profile as 'dependence on coconut oils continues to reduce' as superior growth 'and share gains across high margin segments emerge'.

Additionally, Jamshed Dadabhoy writes: 'The Paras acquisition is fairly small for now -- only ~3% of consolidated revenues -- but represents a high growth and high margin opportunity for Marico over the medium term. If Marico is successful in growing the brands / the business, it could result in further white spacse to leverage off the brand equity of its value added hair oil segment'.

Source: Citi

British American Tobacco

Industry: Tobacco

Region: Europe

Ticker: LSE: BATS

Revenue (annual report): £ 15.260 billion (US$ 26.18 billion) (2013)

Citi has listed British American Tobacco as a Buy because they 'believe it can continue to generate solid EPS growth, thanks to its pricing power' in emerging markets. Additionally, it has the highest exposure to the emerging markets, and the lowest exposure to the weak European market.

Analyst Adam Spielman writes that, 'we believe BAT is growing strongly in a lot of small markets, for example, Bangladesh, Venezuela, Romania, Saudi/UAE, and East Africa'.

Source: Citi

Japan Tobacco

Industry: Tobacco

Region: Japan

Ticker: TYO: 2914

Revenue (annual report): ¥ 2.399 trillion (US$ 23.6 billion) (2013)

Japan Tobacco commands the top share of the Russian cigarette market (the second biggest cigarette consumer) and the Japanese market (the fifth biggest consumer). Analyst Nobuyoshi Miura writes that, 'retail prices in both countries are so low on a global basis, and we see substantial scope for profit growth via price hikes'.

Additionally, the Japanese government recently increased the consumption tax from 5% to 8%, after which the cigarette ASP (excluding tax) rose around 3%. In October of 2015, Japan is planning on raising the consumption tax to 10%, and Citi 'sees a possibility of JT's ASP rising again'.

Source: Citi

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