Morningstar | Brazil Bounces Back in Ambev's 2Q, Highlighting the Upside to the Stock
Ambev beat our above-consensus estimates in the second quarter on strong pricing in Central and South America. We are retaining our wide moat rating and our BRL 21 fair value estimate, and we see modest upside to the shares. Ambev is Anheuser-Busch InBev's Latin American arm, offering exposure to some growing markets, as demonstrated in these results, without the drag of the declining U.S. business.Second-quarter organic growth of 11% represents a sequential improvement on the 6% growth rate achieved in the first quarter, and is around 3% above our expectations. The big news in the quarter is that volumes, and Brazil in particular, returned to growth, with a 2.6% organic volume increase. Beer Brazil posted 1.7% organic volume growth, shrugging off the impact of the truckers' strike. It is also pleasing that last year's price increases (price/mix in Beer Brazil was up 7.5%) appear to be sticking. The FIFA World Cup will have helped volumes this quarter, and will continue to do so in the third quarter, but we think a low-single-digit growth rate is achievable in Brazil in the medium term, driven by premiumisation into the company's global brand portfolio and consumption growth. The performance of the global premium brands--Budweiser, Stella Artois, and Corona--which again grew in the double digits in the second quarter, suggests that our premiumisation thesis is intact. We expect this to drive 6% growth in the steady state, and think Ambev can generate more than 3 percentage points of gross margin expansion over the next five years.
Ambev again executed well on margin expansion, a cornerstone of our investment thesis. The gross margin expanded by 130 basis points organically to almost 62%, and the EBITDA margin expanded by 160 basis points, continuing the trend of the first quarter, in spite of the company's heavy marketing investments around the World Cup. Our medium-term EBIT margin assumption of 42% remains in place.
Ambev is a beverage manufacturing group based in Brazil. Co. produces and sells beer, draft beer, soft drinks, other non-alcoholic beverages, malt and food in general, by participating either directly or indirectly in other Brazilian-domiciled companies and elsewhere in the Americas. Co. has operations in 18 countries: Brazil, Canada, Argentina, Bolivia, Chile, Paraguay, Uruguay, Guatemala, Dominican Republic, Ecuador, Peru, El Salvador, Honduras, Nicaragua, Saint Vincent, Dominica, Cuba and Antigua. Co. conducts its operations through three business segments: Latin America North, Latin America South and Canada.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.