Morningstar Magazine - December/January 2015 - 43
exposure to emerging markets other
than Africa ( E X H I B I T 3 ). All these firm have
economic moats.
Mead Johnson
Mead Johnson MJN is best positioned to
take advantage of China's continued diet upgrade.
It has significant exposure to the infant
nutrition category, which is a competitively
advantaged segment given that parents tend to
be highly loyal to brands when it comes
to products for children.
Mondelez
Mondelez focuses on confectionery, and it
enjoys proportionately greater exposure
to India than other global players (other than
Unilever). It has staked out strong positions
in sub-Saharan Africa and is poised to benefit from
dietary tailwinds.
Monsanto
Advanced seed technologies will be necessary
to boost crop yields. Monsanto, along with
DuPont, has already staked out seed-industry
claims in South America, a region that
has benefited from China's appetite for soybeans.
Additionally, the company is starting to make
inroads through joint ventures in the Chinese seed
market. Although insignificant currently, we
think sub-Saharan Africa represents a substantial
market opportunity for seed companies further
down the road.
Nestle
Among the global consumer firms we cover, Nestle
offers the broadest exposure to emergingmarket diets. Nestle is the largest packaged
food firm in the world, with a vast product portfolio
that includes beverages, dairy products,
infant nutrition, and confectionery. Nestle's
extensive history in several emerging markets,
including sub-Saharan Africa, and nuanced
understanding of customers and routes to market
enhance its competitive position. The firm
is positioned to take advantage of a growing
middle class but also serve a more constrained
consumer base. Its Popularly Positioned
Products strategy, according to the company,
offers a similar quality and nutritional profile as its
core product base, but at more affordable
prices. Within Africa, Nestle's products include
coffee, ice cream, and cooking aids.
PotashCorp
If the world is to meet the growing
dietary demands of emerging markets, crop
yields will need to improve. That will
require significantly more fertilizer. Potash
Enterprises, where we anticipate the largest
growth in absolute volumetric terms. However, we
think Africa is the jewel in SABMiller's
crown. Being the first mover in South Africa and
other markets has created a distribution and
cost advantage that new entrants will find difficult
to overcome if they want to compete in the
value segment.
EXHIBIT 3
Global Diets Top ways to gain exposure to emerging-markets dietary trends.
Company, Ranked
by Price/Fair Value
Moat
Industry
Rexam REXMY
Narrow
Beverage Packaging
38.82 (USD)
48 (USD)
0.81
Monsanto MON
Wide
Seeds
115.04 (USD)
130 (USD)
0.88
Yum Brands YUM
Narrow
Restaurants
71.83 (USD)
80 (USD)
0.90
Nestle NESN
Wide
Packaged Goods
73.33 (USD)
78 (USD)
0.94
Mondelez MDLZ
Wide
Food & Beverage
35.26 (USD)
35 (USD)
1.01
PotashCorp POT
Wide
Fertilizers
34.17 (USD)
32.95 (USD)
1.04
Mead Johnson MJN
Wide
Infant Formula
99.31 (USD)
95 (USD)
1.05
SABMiller SAB
Wide
Beverages
3525 (GBP)
3200 (GBP)
1.10
Price
Fair Value Price/Fair Value
Data as of Oct. 31, 2014.
Corporation of Saskatchewan sells fertilizer
around the globe, with exposure to both emerging
markets and the developed-market bread-baskets
that feed them. Capacity expansions position
the firm to meet rising demand. PotashCorp's low
costs afford it a competitive edge over peers
in this structurally attractive industry.
Rexam
Brazil and China are key markets for several
food and beverage packaging companies,
including Rexam. Although these countries have
already made substantial gains in caloric
intake, we think there is room for further growth
in high-value food items as diet composition
shifts in these nations. We expect strong growth
in single-serve beverages and a general shift
from glass to metal packaging.
Yum Brands
Our outlook for Chinese restaurant spending
(up 161% over the next 10 years) suggests
that the Yum Brands growth story is far from over.
Although China gets much of the focus as
the company's largest operating profit contributor,
we expect emerging economies such as
India, Indonesia, Malaysia, Vietnam, the
Philippines, and several African markets to become
vital drivers of long-term free cash flow. K
Jeffrey Stafford, CFA, is a senior equity analyst
with Morningstar.
SABMiller
SABMiller has the greatest exposure to China,
given a joint venture with China Resources
global.morningstar.com/Morningstarmagazine
43
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