Consumer Staples
Defensive though not impervious
We expect Consumer Staples’ earnings to remain relatively resilient in the face of
the economic downturn, though we forecast more modest growth. We favour
stocks with strong balance sheets, prolific cash generation, broad-based
portfolios and significant capacity for self-help.
Table 1 : Recommended pairs trades
Sector Long Short
Food Nestlé Danone
Food Unilever Cadbury
HPC Reckitt Benckiser L’Oréal
Beverages Heineken SABMiller
Source: ABN AMRO
2008 – impressive relative performance
The absolute performance of the European Consumer Staples group in 2008 was poor, but
in a market context it was stellar, with most of the large cap names outperforming the
European market handsomely. The relative resilience of earnings (consensus downgrades of
5% vs 13% for the market) was the key driver here, coupled with generally strong balance
sheets and secure dividend yields.
2009 – remaining resilient
We expect both top and bottom-line progress to weaken in the face of the global recession,
but Consumer Staples stocks to continue to post satisfactory EPS growth. While the
downturn in consumer spending is likely to hit top line growth, a progressively more
favourable cost environment and ongoing restructuring benefits should provide a critical
offset. Currency looks set to have a dramatic impact on EPS – positively so for sterling
reporters, but negatively for euro-based stocks.
Investment themes in a challenging environment
In the post credit crunch world, we expect a continued investment preference for companies
with robust balance sheets and strong cash flows that will support dividend payouts. A broad
product and geographic portfolio based around strong market positions should provide
resilience in the face of specific market or category challenges. With top-line growth
moderating, the ability to drive margins forward via restructuring and other self-help
measures is likely to assume greater importance.
Nestlé, Unilever, Reckitt, Imperial and Heineken are our top picks.
With the scale of absolute share price performance this year likely to be determined by
broader market movements and sector rotation, we have focused on selecting stocks we
expect to deliver sector-relative outperformance. Our key Buys continue to be Reckitt and
Imperial, to which we have added Nestlé, Unilever and Heineken (all upgraded to Buy from
Hold). We have Sell ratings on Cadbury, L’Oréal and Beiersdorf.
15 January 2009
Analysts
Julian Hardwick
+44 20 7678 7228
julian.hardwick@rbs.com
Jonathan Cook
+44 20 7678 7299
jonathan.e.cook@rbs.com
Iain Simpson
+44 20 7678 7358
iain.simpson@rbs.com
Marketing analyst
Duncan Fox
+44 20 7678 1611
duncan.fox@rbs.com
250 Bishopsgate, London, EC2M 4AA,
United Kingdom
http://www.abnamroresearch.com
Consumer Staples | Table of Cont ents | 15 January 2009 2
Contents

Contents
Defensive, though not impervious 3
2009 looks set to provide the toughest consumer backdrop in recent memory and
an uncertain stock market outlook. We expect earnings visibility and resilience,
coupled with strong balance sheets, will continue to find favour with nervous
investors.
Company profiles
Beiersdorf 16
British American Tobacco 20
Cadbury 24
Danone 28
Diageo 32
Heineken 36
Henkel 40
Imperial Tobacco 44
L’Oreal 48
Nestlé 52
Pernod Ricard 56
Reckitt Benckiser 60
SABMiller 64
Unilever 68
Unilever NV 72