Buy AmBev (ABV)
This is the second part of a switch that I began on April 29. On that date I sold AmBev oiut of the Jubak’s Picks portfolio. Today I’m adding it to my Dividend Income portfolio.
Considering all the headwinds, shares of Companhia de Bebidas das Americas, better known as AmBev (ABV), have done just fine this year.
The headwinds include rising prices for the raw materials that go into the company’s beer. And rumors that a big international competitor such as SABMiller will buy Brazil’s second largest brewer Primo Schincariol Industria de Cervejas e Refrigerantes and put big money into taking some of AmBev 70% market share in Brazil. And, the biggest headwind of all, fears that the government of President Dilma Rousseff is losing the fight against inflation.
That last fear has pushed Brazil’s Bovespa down 5.2% this year.
In contrast shares of AmBev are up 4.96% for the year. As I said, considering the headwinds, just fine.
Part of that out performance comes from AmBev’s strong moves to fix a cost problem that popped up in the middle of 2010. Read more
Sell AmBev (ABV)
Read all the way to the end of this before screaming at me, please. Today’s sell is part one of a switch that will take AmBev out of the Picks portfolio and into the Dividend portfolio.
Considering all the headwinds, shares of Companhia de Bebidas das Americas, better known as AmBev (ABV), have done just fine this year.
The headwinds include rising prices for the raw materials that go into the company’s beer. And rumors that a big international competitor such as SABMiller will buy Brazil’s second largest brewer Primo Schincariol Industria de Cervejas e Refrigerantes and put big money into taking some of AmBev 70% market share in Brazil. And, the biggest headwind of all, fears that the government of President Dilma Rousseff is losing the fight against inflation.
That last fear has pushed Brazil’s Bovespa down 5.2% this year.
In contrast shares of AmBev (ABV) are up 4.96% for the year. As I said, considering the headwinds, just fine.
Part of that out performance comes from AmBev’s strong moves to fix a cost problem that popped up in the middle of 2010. Raw materials prices had climbed so fast that the company hadn’t raised prices fast enough to keep pace. The company bit the bullet in the fourth quarter of 2010 (reported on March 3) and raised prices by 9%. That did, as I’m sure the company had feared, cut volume growth from 8.5% in the fourth quarter of 2009. But volume growth still came in positive for the quarter at 2.7%. Combine that volume growth with the price increase and revenue climbed 12% from the fourth quarter of 2009. The company’s profit margin increased by 3.1 percentage points.
With that problem fixed, I think investors can focus on how strong they think the headwinds will blow for the rest of 2011. Read more
Update AmBev (ABV)
Oh, Canada!
Maybe AmBev (ABV) should challenge Canadians to see if they can out drink the company’s Brazilian customers.
In the just completed fourth quarter of 2010, AmBev announced on March 3, organic sales volume grew in Brazil by 3.6% and in southern Latin America by 2.6%–but fell by 5.3% in Canada. (If you own this stock, remember to ask for Labatt in Canada.) Thanks to volume growth and price increases net sales climbed by 12%.
Sales in Canada have been a problem for quarters now so this most recent decline isn’t a new problem on the downside. Neither are rising costs for raw materials such as sugar (or actually the rising cost of hedges against higher sugar prices).
What is new is worry that slowing growth in Brazil, as the government fights inflation, will cut into beer sales. For 2011 “there are some pros and cons,” CEO João Castro Neves told analysts on March 3. “A clear pro for 2011 is the low unemployment figure – the lowest we’ve ever had in Brazil.” But that’s balanced by a con since the government has decided to deliver a smaller than expected increase to the minimum wage in 2011.
Under these circumstances the company’s ability to increase EBITDA (earnings before interest, taxes, depreciation, and amortization) margins by 3.1 percentage points to 51.3% was pretty impressive. Read more
Update AmBev (ABV)
Shares of AmBev (ABV), the dominant beer maker in Brazil (69% market share), Argentina (76%), Bolivia (97%), Paraguay (96%), and Uruguay (97%), have been on a roll since the stock moved above its 50-day moving average on August 16. Shares are up 14% since August 13. (The company is no slouch in Canada either with a 42% market share.)
And I think the stock is headed higher. I’m raising my target price to $143 a share by March 2011.
I guess you could say the catalyst was the company’s August 12 earnings report. But more accurately I think the stock is moving up on a reduction in investor worry about risk in general (and emerging market risk in particular) and a realization that the second half of 2010 is definitely easier for AmBev than the first half. Read more
Update Ambev (ABV)
(I am on vacation until August 24. During that period JubakPicks.Com will operate on a reduced posting schedule of one or at most two posts a day.)
The noose got a little tighter around Mexican brewer Grupo Modelo, Mexico’s largest beer maker.
On July 12 the company lost in arbitration with Anheuser-Busch InBev, the world’s biggest brewer. Grupo Modelo had sought to void the transfer to Anheuser-Busch InBev of the 50% stake of Modelo that Anheuser-Busch owned before the merger with InBev that created the beer giant.
The ruling clears the way for Anheuser-Busch InBev to eventually acquire the rest of Grupo Modelo.
AmBev (ABV), the Brazilian brewer and Pepsi distributor that’s controlled by Anheuser-Busch InBev, isn’t a direct party to any of this arbitration or negotiation. But I think this outcome works in AmBev’s favor. Read more
