AMBEV: Beer and Brazil

by Paul Goodwin, editor Cabot China & Emerging Markets Report

Companies with good leadership, attractive product lines and growing customer bases just naturally tend to maintain their leadership, and investors notice.

One company that continues to prove itself as a leader is Companhia de Bebidas das Américas (ABV); its name is Portuguese for Beverage Co. of the Americas, but its usually shortened to AMBEV.

The firm sells beer, sodas and other drinkables in its home country of Brazil, 12 other Latin American companies and Canada.

Selling beer in Brazil (which is the third-largest beer consumer in the world, after China and the U.S.) is AMBEV’s biggest business, producing more than half of revenues. The company’s 70% market share in Brazil is led by its Skol, Brahma and Boa brands.

AMBEV’s Canadian business unit sells Bud and Bud Light, Labatt’s Blue and Stella Artois. The company also has a toehold in international sales, with distribution of Brahma products in Europe, Asia and Africa.

While a majority of its money comes from beer sales, AMBEV also has a substantial lineup of non-alcoholic drinks, including Pepsi-Cola, Guarana Antarctica, Gatorade and Lipton teas.  

Beer is often described as a recession-proof product, and while AMBEV’s revenue growth slowed (to 6%) in 2008, it inched back (to 10%) in 2009 and sprang back (to 20%) in 2010.

Money needed for the expansion of production facilities in northern South America is expected to put some pressure on earnings per share in the short run, but will pay off relatively quickly. AMBEV will report Q4 and 2011 results on March 8, before the market opens.

ABV has been a very steady performer since early 2009, when it was trading at 7. The stock experienced four significant pullbacks in 2011, but each correction was shorter than the last (six weeks in January, five weeks in July, four weeks in September and four weeks again in November).

The stock has traded essentially flat since the middle of December as investors chased hotter issues. Now sitting right on its 25-day moving average at 37, and boasting a 2.8% dividend yield, ABV is nicely positioned.

Carnival will begin in Rio de Janeiro tomorrow, and AMBEV is one of the corporate sponsors for the event.

With Brazil in line for the 2014 World Cup and the 2016 Olympics, the country will use its experience in keeping the event (and its estimated five million participants) running smoothly to take the world stage in sports.

And AMBEV will be waiting to offer every visitor a nice, cold beer. We rate the stock a buy.

Learn more about this financial newsletter at Paul Goodwin's Cabot China & Emerging Markets Report.


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