The largest beer company in Brazil and fourth largest in the world, AmBev (ABV: Charts, News, Offers) (Companhia de Bebidas Das Americas), holds a dominating 70% market share in the country, which ranks as the second fastest growing beer market in the world after China. The Brazilian beer market is forecast to increase by 22% by 2015, which makes ABV a lucrative investment. The stock is currently near 52-week highs near $120 per share, with a trailing P/E of 20.54 and a solid quarterly dividend of 0.67. It’s time to give this beer giant, with a market cap of 74.2 billion, a closer look to see if it’s worth a sip.
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AmBev is currently a subsidiary of Belgium-based Anheuser Busch InBev (BUD: Charts, News, Offers), the multinational beverage conglomerate which owns 25% of the global brewery market. AmBev was formed through the 1999 merger of Brazil’s two largest beverage companies, Companhia Companhia Cervejaria Brahma and Companhia Antarctica Paulista. It also owns Quinsa, a Luxembourg-based holding company which controls beverage operations in Argentina, Bolivia, Paraguay, Uruguay and Chile. AmBev is also the largest bottler of PepsiCo (PEP: Charts, News, Offers) beverages outside the United States, with exclusive distribution deals in Brazil, Argentina and Uruguay. It also owns Canadian beer company Labatt. Its diverse product line is dominated by its beer products, but also includes soft drinks, sports drinks, iced tea and bottled water. Its operating margin, brought about by rigorous cost cutting measures, is one of the most profitable in its industry, at 37.8%, 15-20 percentage points higher than its closest competitors. It also has a significantly lower debt to equity ratio, at 0.29, compared to the industry, which averages at 0.72.
It is also worth noting that its parent company, InBev, will soon take control of Mexico’s Grupo Modelo, the producer of Corona, Modelo and Pacifico. These beer products will give AmBev backup as it fends off Heineken (HINKY.PK), which has just purchased Mexican brewer Femsa, which produces Bavaria, Sol and Kaiser beers in Brazil. While InBev and AmBev still trade as separate companies, the former has an 83% voting interest in AmBev. In addition, AmBev announced plans to merge its interests in Venezuela, the second-largest beer market in South America, with Cerveceria Regional SA. Regional is expected to claim 85% interest, while AmBev will have the remaining 15%. This is another step in the market-wide consolidation in the brewery market, which has also included England’s SABMiller and Japan’s Asahi in competing bids to acquire Australia’s Carlton & United Breweries, the maker of the country’s popular Foster’s brand. With such market-wide consolidation occurring in the midst of an economic recovery, simple stocks such as beverages in BRIC markets may be a reasonable long-term investment. AmBev and its parent InBev currently have their pieces set up in all the right places on the board, and once the new, post-crisis emerging markets in South America pick up steam once more, it will profit handsomely and back its prospective competitors, such as Primo Schincariol back into a corner.
Brazil is one of the few economies which is fundamentally independent from oil, as it has its own reserves, and prior to the crash of 2008-2009, was forecast as one of the world’s new leading economies. As the fifth most populated country in the world, it has three million potential beer consumers reaching drinking age each year. In addition, improving efforts by the government to narrow the gap between social castes has led to an increased consumption of premium brands. Based on its current P/E, AmBev is projected to have an average share price of up to $159 by the end of 2011, and its current share price may be a reasonable jumping on point to build a position in what may well become one of the biggest brands in South America and the world.
Other News About ABV
Investors Pick Philip Morris, but AmBev Outpaces the 52-Week Highs (PM: Charts, News, Offers), (AB: Charts, News, Offers)
Brazil’s Hot Sectors – Other ways to invest in Brazil.
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
