Ambev: Not As Appealing As Its Local Alternatives

seekingalpha06-26

Ambev S.A. is the largest beverage firm in Brazil with a well-established presence in the country and exposure to other Latin American nations and non-alcoholic goods.Ambev's prospects are unclear, ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2446296868?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1294089404/image_1294089404.jpg","is_english":true,"pubTime":"2024-06-26 00:27","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2446296868","market":"fut","top_or_hot":-1,"title":"Ambev: Not As Appealing As Its Local Alternatives","media":"seekingalpha","content":"<div>\n<p>Ambev S.A. is the largest beverage firm in Brazil with a well-established presence in the country and exposure to other Latin American nations and non-alcoholic goods.Ambev's prospects are unclear, ...</p>\n\n<a href=\"https://seekingalpha.com/article/4700963-ambev-not-as-appealing-as-local-alternatives\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Ambev: Not As Appealing As Its Local Alternatives</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nAmbev: Not As Appealing As Its Local Alternatives\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-26 00:27 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4700963-ambev-not-as-appealing-as-local-alternatives><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Ambev S.A. is the largest beverage firm in Brazil with a well-established presence in the country and exposure to other Latin American nations and non-alcoholic goods.Ambev's prospects are unclear, ...</p>\n\n<a href=\"https://seekingalpha.com/article/4700963-ambev-not-as-appealing-as-local-alternatives\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4504","symbol_name":"桥水持仓","start_time":0,"source_url":"https://seekingalpha.com/article/4700963-ambev-not-as-appealing-as-local-alternatives","article_id":"2446296868","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1294089404/image_1294089404.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2446296868","pubTimestamp":1719332836,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Ambev S.A. is the largest beverage firm in Brazil with a well-established presence in the country and exposure to other Latin American nations and non-alcoholic goods.Ambev's prospects are unclear, wi","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4504":"桥水持仓","LU0651946864.USD":"贝莱德新兴市场股票收益A2","LU1051768304.USD":"贝莱德新兴市场股票收益A6","ENGIY":"ENGIE SA","BDORY":"Banco Do Brasil SA","LU1670711123.USD":"M&G (LUX) GLOBAL DIVIDEND \"A\" (USD) INC","LU2133065610.SGD":"JPMorgan Investment Funds - Global Dividend A (mth) SGD","ABEV":"Ambev S.A.","SG9999002224.SGD":"Allianz Global High Payout SGD","LU1515016050.SGD":"Blackrock Emerging Markets Equity Income A6 SGD-H","LU2125154778.USD":"ALLSPRING GLOBAL EQUITY ENHANCED INCOME \"A\" (USD) INC","LU1150488218.USD":"First Eagle Amundi Income Builder AU2-MD USD","LU0229945570.USD":"TEMPLETON BRIC \"A\" (USD) ACC","SG9999014567.USD":"UOB UNITED INCOME FOCUS TRUST FUND (USD) ACC","KO":"可口可乐","LU1064131342.USD":"Fullerton Lux Funds - Global Absolute Alpha A Acc USD","SG9999003800.SGD":"Nikko AM Global Dividend Equity Acc SGD-H","BK4158":"啤酒酿造商","LU0795875086.SGD":"JPMorgan Investment Funds - Global Income A (div) SGD","LU0128526570.USD":"TEMPLETON LATIN AMERICA \"A\" ACC","BK4585":"ETF&股票定投概念","ITUB":"艾涛巴西联合银行","LU1670710661.SGD":"M&G (LUX) GLOBAL DIVIDEND \"A\" (SGD) INC","LU0175139822.USD":"AB FCP I Global Equity Blend A USD","VALE":"淡水河谷","LU1032955483.USD":"NORDEA 1 STABLE RETURN \"HB\" (USDHDG) ACC","LU1196500208.SGD":"NORDEA STABLE RETURN \"HB\" (SGDHDG) ACC","SG9999002232.USD":"Allianz Global High Payout USD","HEINY":"Heineken N.V.","LU1221951046.USD":"NORDEA 1 STABLE RETURN \"HM\" (USDHDG) INC","EWZ":"巴西ETF-iShares MSCI","EWZS":"MSCI巴西小盘股ETF-iShares","LU0456842615.SGD":"JPMorgan Funds - Emerging Markets Equity A (acc) SGD","SG9999014559.SGD":"United Income Focus Trust Dis SGD","LU1718418525.SGD":"JPMorgan Investment Funds - Global Select Equity A (acc) SGD","LU0532187761.SGD":"JPMorgan Funds - Brazil Equity A (acc) SGD","BK4588":"碎股","LU1670711040.USD":"M&G (LUX) GLOBAL DIVIDEND \"A\" (USD) ACC","PBR":"巴西石油公司","IE00B1B80R65.USD":"柏瑞拉丁美洲股票A","BK4208":"复合型公用事业","LU1670710588.SGD":"M&G (LUX) GLOBAL DIVIDEND \"A\" (SGD) ACC","LU1059921491.USD":"NORDEA 1 GLOBAL STABLE EQUITY \"HB\" (USDHDG) ACC","SG9999015358.SGD":"United Income Focus Trust Dis SGD-H","BK4207":"综合性银行","LU1221951129.SGD":"NORDEA 1 STABLE RETURN \"HM\" (SGDHDG) INC","LU1150488135.SGD":"First Eagle Amundi Income Builder AHS-MD SGD-H","LU1162221912.USD":"FRANKLIN INCOME \"A\" (USD) ACC","SG9999004303.SGD":"Nikko AM Shenton Global Opportunities SGD","BK4581":"高盛持仓"},"translate_title":"Ambev：不如当地替代品有吸引力","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BDORY":1,"VALE":1,"PBR":1,"KO":1,"ITUB":1,"HEINY":1,"EWZS":1,"EWZ":1,"ENGIY":1,"ABEV":1},"content_text":"Ambev S.A. is the largest beverage firm in Brazil with a well-established presence in the country and exposure to other Latin American nations and non-alcoholic goods.Ambev's prospects are unclear, with challenges in revenue growth, net income, and operating margins, making it less attractive compared to other Brazilian companies.The hold rating is based on Ambev's unattractive comparative valuation against other Brazilian stocks, compounded by uncertain growth prospects.Alfribeiro The largest beverage firm in Brazil, Ambev S.A. (NYSE:ABEV), has about 60% of the beer market in the country, indicating a well-established presence in addition to exposure to other Latin American nations and non-alcoholic goods. Ambev's stocks have decreased by 24% year-to-date (YTD) underperforming the country's main index, iShares MSCI Brazil ETF (EWZ), which has fallen by approximately 18%. This fall, together with its solidity, is attracting the attention of some investors who want to position themselves in mature companies that distribute good dividends. However, in relative terms, Ambev's shares still seem unattractive to me considering its cloudy prospects and only \"ok\" valuation. Ambev's Prospects Aren't Too Clear In the last 10 years, Ambev has almost doubled its revenue in local currency, from ~R$37 billion to almost R$80 billion, even in a dynamic scenario, with competition from Heineken N.V. (OTCQX:HEINY) that has intensified over the years and volatile input prices. But when we look at this dollarized figure, it's a different story: instead of a growth trend, we now see high volatility and revenue that has plateaued and faced some challenges to remain at the same level. This is inherent to the business of the vast majority of companies in Brazil and not a risk that should be attributed to poor management, but it is still worth pointing out and carries a lot of weight for investors. Koyfin This is even more apparent in Net Income, since in addition to FX, the sharp reduction in margin over the last decade has contributed to net income falling from something close to $4 billion to $2.9 billion. Koyfin The drop in net income margin is in line with the company's falling operating margins over time, which are explained by various factors, including commodity prices that directly impact its production, but also different market dynamics, such as competition with Heineken catalyzing the difficulty of passing on price increases to consumers and eventually leading to promotions and discounts in order to remain relevant in the market. Looking back, you can see that the scenario wasn't obvious even for the sector leader, and looking forward, the landscape still seems a little hazy. In 1Q24, some positive signs may indicate that both the low topline and the pressured margins are behind. For example, revenue in Brazil (which represents more than 50% of the company) grew by 6%, affected by both higher volume and a better mix (more premium products), and in the Brazil Beer segment, COGS/HL fell by 3.5% with the effects of FX and commodity tailwinds, causing the EBITDA margin to advance by almost 3% YoY. On the other hand, in NAB (Non-Alcohol Beverages) this same cost indicator rose 8%, with sugar headwinds, inflation, and a worse product mix. Structurally, its dominance in the market, with a quarterly volume of more than 44,900 hl, makes it challenging to grow at an accelerated rate in this metric, especially in markets like Brazil, which accounts for 70% of this share. As much as the company is present in other locations with greater growth potential and invests in new products, it seems challenging to me to project scenarios where the volume sold continues to grow at an interesting level consistently. So what's left would be growth via a better product mix and inflation pass-through, which, although a little clearer, also doesn't seem like a secular trend considering the still competitive environment and the uncertain macroeconomic scenario in most countries. For margins, internal initiatives combined with better commodity prices could help the recovery. In other words, Ambev has some growth triggers, but they are not yet so clear when compared to the challenges it must continue to face in the short and medium term. The \"Brazil Risk\" is Important Ambev's thesis has these specific risks, such as competition and the dynamics of the products consumed. But I believe that one of the main risks is macroeconomic. As I wrote in the article on Brazilian Small Caps (EWZS), many companies in Brazil are exposed to a high risk from the domestic economy. Currently, the Brazilian interest rate is at 10.5%, a level that is still restrictive for the economy and with a lot of uncertainty about the quantities and magnitudes of cuts over the next few years, given the global macroeconomic scenario (high US interest rates) and Brazil's fiscal challenges. On the other hand, inflation is under control, with projections slightly above the target (3%) for the period 2024 to 2026, while GDP projection remains timid, with the Central Bank of Brazil indicating growth of around 2% over the same period. The exchange rate assumptions are also stable, despite the recent devaluation of the real. However, even with these stable prospects, before investing in Ambev it is necessary to understand not only that its operations are subject to these variables, but also to understand that its volatility and even its valuation also depend on these factors. The US Free Risk Rate, which with an ERP of 4% means that the discount rate for companies like The Coca-Cola Company (KO) can be close to 8%. As for Brazil, the pre-fixed treasury maturing in 2035 has an annual interest of 11.8%, which with the same ERP of 4%, already makes this discount rate easily exceed 15%, and that's without adding a premium for Brazil Risk. Valuation Compared to The Rest of Brazil Given the section above, I don't think it's fair to compare Ambev's valuation with companies from other countries, such as Heineken or Coca-Cola, but rather to compare it with other Brazilian companies, whether they are in the same sector (beverage/non-cyclical) or not. In recent years, both Ambev's multiples and the multiples of the Brazilian index have fallen. Ambev's forward mean price-to-earnings over the last 5 years was 19x and now this indicator stands at 11.6x, which at first glance may seem cheap, but the forward P/E of the rest of the index is below 6x. Excluding Petróleo Brasileiro S.A. - Petrobras (PBR) and Vale S.A. (VALE), the LTM P/E is close to 10.5x, more in line with Ambev's current valuation. Being even more detailed, the P/E of Ibovespa's non-cyclical consumer sector is 14.8x, slightly above that of Ambev. In other words, I wouldn't say that Ambev's current valuation is bad, it's well below its history and also below its sector, which guarantees a slight margin of safety and an attractive dividend yield of more than 6%, helping with the carry of cost. But even so, when compared to other opportunities in Brazil, it just doesn't seem attractive enough. There are a range of Brazilian companies that have both solidity and clearer growth prospects, as well as better valuations and more attractive dividend yields, such as a large part of the utilities and financials sector, to name a few, Banco do Brasil S.A. (OTCPK:BDORY), Itaú Unibanco Holding S.A. (ITUB), Engie SA (OTCPK:ENGIY), among many others. This comparison with companies from other sectors may not seem so fair, but it is necessary to remember the opportunity cost, if there are companies with such a better risk-return ratio, Ambev necessarily becomes less attractive. Final Thoughts and Rating Explanation As such, I believe that Ambev's shares are only reasonable on a number of factors. The outlook for growth is fraught with uncertainty, with some triggers for possible margin recovery. Valuation isn't expensive, but it's not a bargain compared to other companies either.  All this supports a \"hold\" rating for Ambev's shares. If the company's operational prospects were worse, I would consider a Sell rating, but I understand that the asymmetry is also not so favorable for shorting the shares if positive surprises occur.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.26.4","shortVersion":"4.26.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2446296868"}