Ambev (ABEV, Financial) is a South American brewer that is 62% owned by Anheuser-Busch Inbev (BUD, Financial). The stock has been sold off over the last month due to weak earnings and the U.S. presidential election.
Ambev has 15.7 billion shares, the stock price in the U.S. is $5.16, and the market cap is $81 billion. The forward dividend is 10 cents, and the dividend yield is 1.9%. Trailing earnings are 76 cents, and the price-earnings (P/E) ratio is 23.45.
Sales grew from $27.1 billion in 2011 to $46.7 billion in 2015. Earnings grew from 53 cents per share to 79 cents over that time frame. According to Morningstar, operating margins are 40.2%, and return on equity is 27.44%. Shares outstanding grew from 9.6 billion to 15.6 billion from 2011 to 2015. Sales are broken down into three regions: Latin America North (Brazil and Central America), Canada and Latin America South (the rest of South America). Latin America North accounts for 63.5% of sales, South 24.1% and Canada (through Labatt) 12.4%. Ambev has 67.5% of the Brazilian market, according to its estimates.
The balance sheet shows $7.6 billion in cash and $3.8 billion in accounts receivables. The liability side shows $2.7 billion in short-term debt, $8.7 billion in payables and $1.7 billion in long-term debt. Very solid. Free cash flow was $18.3 billion in 2015. Its debt is A rated by Standard & Poor's.
Ambev's better known brands include: Skol, Brahma, Antarctica, Quilmes, Labatt and Presidente. It also distributes Pepsi (PEP, Financial) and other drinks throughout South America and the Carribean. In 2004, Inbev traded Labatt to Ambev in exchange for shares. Inbev now owns 61.9% of Ambev and FAHZ owns 9.9%. According to the 20F (Annual Report), holders of the ADRs are not allowed to attend annual meetings or vote on matters if I understand the report correctly. The mergers and acquisitions history is very long. There have been many beer companies bought in the last several years.
The real has been volatile over the last five years. In 2011, it only took 1.9 real to buy one dollar. In 2015, it took 4.2. Now, it takes 3.2. The stock was $9 in early 2013 and $6.25 just a few weeks ago. It took a nose dive with the election.
The currency swings can hurt (or help) the costs of commodities such as wheat and aluminum. Ambev can pass the costs on to the consumer, assuming the economy is strong enough.
Jorge Paulo Lemann is the master mind behind the whole thing. He is a principal at 3G Capital which teamed with Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) to buy Heinz. Lemann's son, Paulo Alberto Lemann, sits on the board of Ambev.
In the most recent quarter, earnings rose from Q3 2015 3.6% to $1 billion. EBITDA fell 20% to $1.25 billion. The Brazilian stock exchange has done quite well, but Ambev's stock has lagged behind. Recently it was announced that Ambev would buy a brewery from Kirin for $145.5 million. In May, Inbev had to transfer SAB's operations in Panama to Ambev in exchange for Ambev's operations in Peru, Ecuador and Columbia.
So is the stock a buy? It just might be. It has gotten pummeled in the last month due to a drop in earnings and the presidential election. It has also underperformed the Brazilian markets. It might be good for at least a $1 pop.
Disclosure: We do not owns shares.
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