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Market Overreaction to Temporary Mix Effects in Q3 Fiscal 2020 Creates Entry Point to Ambev

Analyst Note

| Philip Gorham, CFA, FRM |

Ambev reported strong volume growth in the third quarter, implying strong execution and market share gains in Brazil. Although organic revenue growth of 15% exceeded our forecast, we are adjusting our forecasts to reflect a sooner-than-expected rebound, rather than a structurally higher growth rate, out of caution, and we retain our BRL 18 fair value estimate and our wide moat rating. We are surprised by the subsequent sell-off, and think it creates an attractive entry point to a stock that was already undervalued. We believe the negative market reaction is related to concerns over the EBIT margin going forward, and perhaps some worries that pricing strategies during the quarter indicate less visibility into pricing. While both of these concerns are legitimate in the short term, we think the algorithm is in good shape for the long term.

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Company Profile

Business Description

Ambev is the largest brewer in Latin America by volume and the fourth- largest beer producer in the world. It produces, distributes, and sells beer and PepsiCo products in Brazil and other Latin American countries. It also owns Argentina's largest brewer, Quinsa. Ambev was formed in 1999 through the merger of Brazil's two largest beverage firms, Brahma and Antarctica. In 2004, Ambev combined with Canadian brewer Labatt, giving Interbrew (now Anheuser-Busch InBev) a controlling interest.

Rua Dr. Renato Paes de Barros, 1017, 3rd Floor
Sao Paulo, SP, 04530-001, Brazil
T +55 1121221200
Sector Consumer Defensive
Industry Beverages - Brewers
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type
Employees 51,352