Company Reports

Wide-moat Ambev reported a good quarter with normalized EBITDA of BRL 6.5 billion, up around 12% organically and slightly above company-compiled consensus. The results were mainly driven by double-digit EBITDA growth in Central America and the Caribbean, or CAC, and Brazil, in both beer and NAB. We are reiterating our wide moat rating and our BRL 18 fair value estimate. The stock price remained stable, and at current levels it has an upside potential of around 40%.

Brahma, the Brazilian brewer, was the first foray into the consumer product manufacturing industry by private equity group 3G. In 2000, 3G merged two Brazilian brewers; Brahma and Antarctica, creating Ambev. The company has gone on to roll up brewers throughout Central and South America and holds several monopolylike positions in large markets, including an 81% volume share in Argentina, 68% in Brazil, and 61% in Peru.

Brahma, the Brazilian brewer, was the first foray into the consumer product manufacturing industry by private equity group 3G. In 2000, 3G merged two Brazilian brewers; Brahma and Antarctica, creating Ambev. The company has gone on to roll up brewers throughout Central and South America and holds several monopolylike positions in large markets, including an 81% volume share in Argentina, 68% in Brazil, and 61% in Peru.

Ambev lost some of its momentum of the last couple of quarters with a slightly disappointing fourth-quarter performance that included soft beer volume. The fourth-quarter volume decline of 0.1%, leading to a full-year contraction of 1.1%, was slightly weaker than we had expected. This is immaterial to our valuation, however, and we are reiterating our wide moat rating and BRL 18 fair value estimate of the ordinary shares. We regard Ambev as being a quality business with very high market shares, albeit with above-average cyclicality and risk relative to other global consumer staples companies, and the shares are attractively valued.

Ambev reported a decent third quarter, with trends indicating stability in the consumer environment and a normalization of the growth algorithm in Brazil. Revenue was slightly below our forecasts, mainly due to weakness in South America, but this is outweighed by the easing of inflationary pressures and margin improvement, in our opinion. We are maintaining our BRL 18 per share fair value estimate and our wide moat rating. Although the market reacted positively in early trading on Oct. 31, we still see upside to our valuation. We regard Ambev as being a quality business with very high market shares, albeit with above-average cyclicality and risk relative to other global consumer staples companies, and the shares are attractively valued.

Brahma, the Brazilian brewer, was the first foray into the consumer product manufacturing industry by private equity group 3G. In 2000, 3G merged two Brazilian brewers; Brahma and Antarctica, creating Ambev. The company has gone on to roll up brewers throughout Central and South America and holds several monopolylike positions in large markets, including an 81% volume share in Argentina, 68% in Brazil, and 61% in Peru.

Our hopes that Ambev's margins had bottomed out were given a boost by the company's second-quarter performance. The key financial metrics that we watch closely were mixed, with volume declining 2% year over year—a touch below our expectations—but margins beginning to recover. We attribute the volume weakness to cyclical factors rather than any change in the long-term fundamentals of the business, and although we have slightly lowered our full-year earnings estimate, this has no impact on our BRL 18 fair value estimate or our wide moat rating. While the stock has rerated moderately during the last six months, we still think there is some upside from the market valuation as of early trading Aug. 3.

Ambev comfortably beat our operating income estimate in the first quarter of 2023 as margins began to recover from the severe inflationary pressures of recent quarters. We are reiterating our wide moat rating and our BRL 18 fair value estimate. We believe that a continued rebuilding of margins in Brazil could be key to unlocking the over 20% upside to our valuation, as at the close of trading on May 16.

Brahma, the Brazilian brewer, was the first foray into the consumer product manufacturing industry by private equity group 3G. In 2000, 3G merged two Brazilian brewers; Brahma and Antarctica, creating Ambev. The company has gone on to roll up brewers throughout Central and South America and holds several monopolylike positions in large markets, including an 81% volume share in Argentina, 68% in Brazil, and 61% in Peru.

Ambev reported slightly better results that we had anticipated in the fourth quarter and full year of 2022. Volume was slightly weaker than our estimate and revenue a touch stronger. While margins continued to contract, in line with our forecast, the revenue upside trickled down the income statement and led to slightly higher earnings per share than we had expected. The operating environment continues to be challenging, and we expect further commodity inflation to be passed through this year. However, these results show that Ambev is performing as well as can be expected, and has so far been able to pass on inflation to customers.

Ambev continued its business momentum in the third quarter of 2022, with results that in aggregate were in line with our forecasts. The good news was another healthy performance in Brazil, which represented over half of the company's revenue and where both beer and soft drinks revenue exceeded our estimates. The bad news was that the Central America and the Caribbean, or CAC, division remained weak, but at 10% of revenue, this region is much less significant to Ambev's valuation. We have made minor tweaks to our short-term forecasts, mainly for currency movements, and we are reiterating our wide moat rating and BRL 18 fair value estimate.

Ambev again beat our forecasts on the top line in the second quarter of 2022 and has now strung together three quarters of decent results. Trends from the first quarter were largely sustained in the second as it appears consumers remain willing to accept higher prices, although margins contracted due to an acceleration in cost inflation. We are reiterating our wide moat rating and BRL 18 fair value estimate for Ambev, and as of the close of trading on July 27, the market value of the shares offered upside to our valuation.

Ambev beat our forecasts on the top line in the first quarter of 2021, as the consumer appears to be more willing to accept higher prices than we had initially expected, but ferocious cost pressure meant that operating profit was only modestly above our estimate. We are reiterating our wide moat rating and BRL 18 fair value estimate for Ambev, and as of the close of trading on May 4, the market value of the shares offered significant upside to our valuation.

Ambev reported a robust gross margin in the fourth quarter; an encouraging sign that consumers in its core markets will be willing to absorb some of the rising costs of raw materials in the coming quarters. We are reiterating our BRL 18 fair value estimate and wide moat rating. While we expect some volatility in Ambev's stock as inflation takes a short-term bite out of margins, we regard Ambev as being a very high-quality franchise that is currently undervalued.

Brahma, the Brazilian brewer, was the first foray into the consumer product manufacturing industry by private equity group 3G. In 2000, they merged two Brazilian brewers; Brahma and Antarctica, creating Ambev. The company has gone on to roll up brewers throughout Central and South America and holds several monopolylike positions in large markets, including an 81% volume share in Argentina, 68% in Brazil, and 61% in Peru.

Ambev was a key driver of AB InBev’s strong third quarter, with the Latin America brewer reporting surprisingly strong beer volume in Brazil and South America. We have raised our short-term assumptions accordingly, but this has no impact on our BRL 18 fair value estimate. We are reiterating our wide moat rating and regard Ambev as being an undervalued high-quality investment opportunity.

Ambev delivered a second quarter with upside to our expectations on the top line. Organic volume growth of 19% was broad-based and comfortably beat our forecasts. As expected, the gross margin softened, down 50 basis points organically, and we think there is likely to be more pressure to come in the latter half of the year. Ambev is a wide-moat company with dominant market positions and better-than-average pricing power. We have high conviction that even if margins continue to contract this year, the firm will be more than able to offset inflationary pressure in the medium term. We reiterate our BRL 18 fair value estimate, and with the stock having pulled back as commodity prices have continued to rise, we now consider it to be fairly valued.

Ambev reported a strong first quarter in 2021, beating our estimates on better-than-expected volume in Brazil and Latin America South. We have pulled forward the timing of the rebound in our assumptions, and maintain our BRL 18 fair value estimate. We think Ambev is a very high quality franchise, and it offers a different risk profile for investors who wish to avoid the balance sheet risk of parent company AB InBev. We expect this first-quarter report to be well received by investors, but still see upside from the current market price.

Brahma, the Brazilian brewer, was the first foray into the consumer product manufacturing industry by private equity group 3G. In 2000, they merged two Brazilian brewers; Brahma and Antarctica, creating Ambev. The company has gone on to roll up brewers throughout Central and South America and holds several monopolylike positions in large markets, including an 81% volume share in Argentina, 68% in Brazil, and 61% in Peru.

Ambev wrapped up 2020 on strong footing, with decent fourth quarter and full year results that were largely in line with our forecasts. Fourth-quarter volume in the Beer Brazil segment increased by 12%, a remarkable turnaround from the double-digit declines of the first half of the year. As we stated in our third-quarter earnings note, however, short-term margins are likely to come under pressure from commodity cost inflation next year, but we see no reason why margins can't rebound in the medium term. We are reiterating our wide moat rating and our BRL 18 fair value estimate, and on that basis, we think the stock is materially undervalued.