December 7, 2022

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Ambev (ABEV3): Analysts remain divided between rising sales and cost pressure after the balance sheet;  stock closing

Ambev (ABEV3): Analysts remain divided between rising sales and cost pressure after the balance sheet; stock closing

Ambev’s ON shares (ABEV3) recorded a falling session, to close with a decrease of 4.25%, at 13.73 Brazilian riyals, in the ensuing session Result of the first quarter of 2022 (1Q22), even as market analysts highlight positive surprises on the balance sheet. It is worth noting that today saw a sharp drop in the market, as the Ibovespa index fell by about 2.8%.

Credit Suisse was most optimistic about the beverage giant’s numbers, which analysts said were “particularly impressive”.

Once again, Ambev surprised favorably with 2.1% annual growth in Brazilian beer volume, reaching record levels of 91.3 million hectoliters, despite strong standards and weaker industry trends.

Earnings per share before Credit Suisse and consensus estimates are 25% on average due to lower-than-expected income taxes.

The bank maintains an outperformance (above market average) recommendation for the paper, and a target price of R$16.50 compared to Wednesday’s price(4) of R$14.34, or a potential upside of 15% against the last close.

In a conference call to present the results, Jean Jreissati, CEO of the company, noted that the company had performed well between January and March, with the growth of international operations and the resumption of Brazilian operations.

He assessed that the brewery managed to improve its domestic sales volume in the first quarter, despite seasonality and the most recent price increase, implemented in October. “This quarter confirms Ebitda’s growth journey [lucro antes de juros, impostos, depreciações e amortizações] He emphasized that the main change is Brazil.”

Although persistent global inflation has been dragging on margins, as expected, XP indicates, a consistent business strategy across all Ambev units, combined with a recovery in out-of-home consumption in Brazil, helped the company offset January’s weakness and thus deliver a solid increase. In net revenue per hectoliter along with higher year-over-year volumes.

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Net revenue was 4% higher than the XP forecast, while adjusted EBITDA was 10% higher than the corporation’s forecast.

Challenge scenario, positive initiatives

However, XP expects a challenging year as it expects total cost pressures and ongoing inflation to continue to negatively impact margins.

“However, we remain optimistic and admire how quickly a 100-year-old company has been able to change during the worst crisis ever. We expect Ambev to continue to expand its competitive advantages, particularly on the commercial front, and therefore, will continue to outperform its competitors,” As assessed by analysts.

Thus, it repeats the buy recommendation and target price of R$18.80 in Ambev, or a 31% upside potential compared to Wednesday’s close.

For Bradesco BBI, who also highlighted the results as positive, above-expected beer volumes indicate that the company has continued to benefit from challenges from competitors, who are facing bottlenecks and need to implement stronger price increases to offset margin pressure. The recommendation is better in terms of a target price of R$21, or a 46% increase compared to the last close.

In turn, Morgan Stanley, who has been more pessimistic with the company’s investment thesis, emphasized that beer sales numbers were strong during the quarter, but costs increased, resulting in no major surprises for Ebitda. Thus, analysts do not see the result as a catalyst for action and continue to recommend below (exposure below market average) for ABEV3, with a target price of R$14.34, or 16.3% below its closing value on the eve.

Analysts point to a difficult 2022 as demand for beer in Brazil is expected to cool, competitors increase capacity and investors focus on long-term costs.

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With revenue expected to slow in the future and margins hurt at lower levels for a longer period, analysts still view equity multiples as elevated and remain more negative.

In contrast, Goldman Sachs has a sell recommendation for the stock with a target price of R$12, or 16.32% lower than the previous day’s close, although it highlights the result as largely positive.

Net revenue was slightly ahead of the Bloomberg consensus (+3%), while EBITDA was slightly lower (-3%, adjusted for tax credits), they assessed, as beer volume grew, gaining momentum over the quarter. Outperformed by both industry (down 9%) and Heineken (low single-digit annual growth).

As expected, cost inflation remained high and prices were not enough to fully offset it, which led to Ebitda’s margin (Ebitda on net revenue) down 2.2 percentage points year over year, below the Bloomberg consensus.

“We realize that bees [plataforma digital B2B] It has gained strength, but with the non-Ambev product portfolio accounting for about 3% of Beer Brasil’s revenue, we believe it may take some time to achieve volume,” they estimate. Analysts expect the market to continue to focus the discussion on volume growth in the short term.

On the balance sheet conference call, the CEO of Ambev estimated that the brewery managed to increase revenue per hectoliter and that it gained market share, but the scenario remains uncertain due to the overall conditions. “There are doubts about the disposable income of the people in the year, in relation to the inflationary effect. On the other side, we had two carnivals.”

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The scenario of price rebalancing has changed in 2022. In the past two years, the issue of transferring prices to consumers has been a problem on the part of enterprises, affected by the restrictions of Covid-19. “We have reviewed the entire pricing structure and did not want to put pressure on domestic consumption. If you stress the matter with price, it will be overrated,” said Lucas Machado Lira, the company’s chief financial officer.

In 2022, the price-passing strategy becomes more general, with channel assessment and an eye on competition. “We have been able to make it grow. We will remain flexible, keep an eye on inflation and monitor the flexibility of disposable income, so that we can take advantage of the opportunities.”

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