Suntory’s New CEO Wants To Spend Over $5 Billion in M&A

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Japan beverage maker deals could bring Suntory stock back onto radar of institutional owners that have shunned shares since pandemic’s start

Suntory Beverage and Food Ltd’s (TYO:2587, OTCMKTS:STBFY) new CEO, Makiko Ono, is set to lead the group on a new major M&A strategy worth more than $5 billion in value. Ono’s appointment as CEO is a historic move as she is Japan’s first female CEO of a listed company with a market cap of over 1 trillion yen ($7.58 billion).

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On the job since March 24, she faces the tough task of creating shareholder value for a company that has had a stagnant share price for the most of the last 10 years.

The chart below from Fintel’s financial metrics and ratios page for Suntory shows the flat cash flow generation from operating activities over the last five years.


Overseas Experience

Ono's professional experience primarily involves spearheading overseas acquisitions, and she happens to be one of the rare female employees working in foreign territories for the company. She intends to apply her proficiency in this area to steer growth by adopting a comparable approach, capitalizing on alterations in consumer habits induced by the COVID-19 pandemic.

Regarding the new strategy, Suntory aims to pursue M&A opportunities worth as much as 700 billion yen over the next few years, with a focus on health-related drinks in markets where the company has little presence. In her overseas work, she led European deals including the acquisition of French fizzy-drinks brand Orangina, and the U.K.'s Lucozade and Ribena.

According to Ono, the impact of COVID-19 and remote work has led to more growth opportunities in products such as energy drinks, tea, and canned coffee. Consumers are becoming more health-conscious both mentally and physically, and Suntory sees potential in this trend.

While Suntory's acquisition strategy has yet to be finalized, the company is already eyeing potential in health-related drinks in the U.S., Asia and other regions.

Gender Boost

Ono's appointment, after 40 years with the same company, is seen as an encouraging sign of change by analysts, although Suntory Beverage and Food falls short of Japan's goal to have 30% of managerial positions filled by women. In lower manager roles, the group's gender diversity still falls short, with the proportion of female managers currently at 6.8% compared with 13% at the parent company, Bloomberg reported.

Ono attributes the gap in gender diversity to the challenges women face in working in factory roles at Suntory Beverage, which sometimes involve night shifts and make it difficult to balance work and family responsibilities. The appointment could be a harbinger of changes in the drinks industry. U.K. rival Diageo PLC (NYSE:DEO) on Tuesday appointed its first female CEO, naming Debra Crew to succeed longtime chief Ivan Menezes.

With Ono's appointment as the new leader, Suntory aims to reinforce its current brands and hasten its expansion into foreign markets in light of Japan's aging population and escalating expenses.


Upside Questions

Ono's ambitious pursuit of mergers and acquisitions has the potential to disrupt the corporate landscape in Japan and assist Suntory in capturing opportunities for growth in novel markets.

Fintel’s consensus target price of 5,578 yen per share suggests the stock could rise 15% over the next year. The Tokyo-traded shares closed Wednesday at 4,920 yen.

Analysts at Nomura are cautious on the stock with a neutral call and 4,900 yen price target, expecting limited upside at current prices.

The firm highlighted in a recent report that it thinks Suntory needs to announce fresh price hikes soon to combat fierce cost inflation if it wants to implement them before the summer season.

Nomura also expects the incoming CEO to make use of the strong balance sheet likely with large-scale M&A.

Institutional Disinterest

Research from the Fintel platform highlighted that Suntory’s stock has been lacking investment from institutions. The Fintel Fund Sentiment Score of 33.13 is bearish on the company, ranking JP:2587 stock in the bottom 25% of the 36,370 globally screened companies for the highest levels of institutional buying activity.

Suntory has a total of 240 institutions on the register that collectively own a total of 11.96 million shares on the register.

The chart below illustrates the declining level of institutional ownership in the stock since the beginning of the pandemic.


Article by Ben Ward, Fintel