Ambev shares (ABEV3) recorded their fourth consecutive session of declines this Monday (16), but with the steepest drop on this date, by 4.90%, to R$ 13.20. Already in four trading sessions, the minimum accumulated was 9.22%.
The company’s shares are tainted by the Americanas case (AMER3), as the distributor’s key shareholders Jorge Paulo Lemann, Marcel Telles and Carlos Alberto Sicupira also control the beverage maker. Investors are analyzing the possibility that shareholders will sell part of their shares in Ambev to contain the Americanas crisis.
But, in addition, the news from the operations of the beverage company itself is not positive, amid analysts’ anticipations of a disappointing fourth quarter for the company compared to initial estimates.
On Monday, Morgan Stanley strengthened its recommendation underweight (exposure below the market average, equivalent to a sale) for Ambev shares, with a target price of R$ 12 (from R$ 12.50 before), a value 9% lower than this Monday’s close. The bank expects weak numbers for the fourth quarter of 2022 (4Q22) and sees risks to the result for reasons such as the macroeconomic and competitive environment in Brazil.
Ambev will release its numbers for the fourth quarter of 2022 on March 2.
XP points out that while there were not high expectations regarding the recovery of Ambev’s international business units, strong data from the beverage industry combined with the year-end World Cup may have generated good expectations into early 4Q22.
“However, the weather didn’t help with below average temperatures and a significant volume of rain, plus Brazil getting an early disqualification even though they won the match with four minutes to go,” with XP analysts they cite Brazil’s World Cup defeat in the quarter-finals by Croatia.
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Upstream costs are still expected to be a headwind, and while they expect sequential improvement, XP analysts still expect lower year-over-year margins and earnings before interest, tax, depreciation and amortization (EBITDA). 1% year on year). The cost of hedging in Argentina should continue to impact the result and XP estimates a net income of R$ 2.4 billion (-38% year-on-year).
“As mentioned, the weather didn’t help and Brazil’s early disqualification had a negative impact on volumes. Therefore, we expect a 5% increase in volume compared to the previous year, to 26,865 thousand hectoliters. The revenue management strategy e premiumization net sales per hectoliter should continue to grow, in our view, for which we expect a 10% year-on-year increase,” XP assesses.
Despite an estimated 16% year-on-year increase in revenues, costs should remain unfavorable and margins are expected to decline to 27.2% (+116 basis points vs 3Q22), representing an Ebitda of R$ 2 .9 billion (+4% year after year).
International operations, in turn, are still trailing the consolidated result. Analysts expected margins to decline year-over-year for Latin America South (LAS) and Central America and the Caribbean (CAC), mainly due to the challenging macroeconomic outlook in the regions negatively impacting revenues and with material costs first against.
Canada remains disappointing, with fragile industry holding back the recovery. “The negative highlight should still be the CAC, for which we expect an annual decline of 34% in EBITDA”, analysts underline.
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Also for Itaú BBA, Ambev will release 4Q22 results which are expected to be lower than it initially had for the period, with the quarter disappointment coming mainly from the Beer Brazil division.
“While we believe this arm will experience volume and revenue growth, we understand that these figures will be lower than previously anticipated. Furthermore, we believe that the other divisions of the company, such as CAC and South America, can put pressure on results in the face of a more challenging macroeconomic scenario,” he underlines. Therefore, the bank calculates that Ambev will report a consolidated Ebitda of R$7 billion and a net profit of R$4 billion.
“We stand by our recommendation marketperform (performance in line with the market average, equal to neutral) for ABEV3, with target price equal to BRL 18 [ainda um upside de 36%] at the end of 2023,” highlights the BBA.
there is still optimism
XP instead continues with a buy recommendation for assets, with a target price of R$ 18.10, or a potential appreciation of 37% compared to this Monday’s close. “Although not yet in 4Q22, the lower exchange rate and aluminum prices should allow margins to recover in early 2023. However, the climate remained cool [boa parte de] January, despite the recovery of worldly events is positive”, he evaluates.
It should be noted that, last week, UBS BB raised the recommendation for sell to buy shares (i.e. a double increase), as well as raising its target price from BRL 14 to BRL 18.
The bank’s analysts assessed four factors for the recommendation increase.
First, the prospect of solid revenues, with an average growth of 8% annually between 2023 and 2025, driven by a proven commercial strategy, past price increases and a positive sales mix effect.
Second, they estimate that Ebitda in Brazil will reach a tipping point in 3Q23, driving margin expansion from 27.8% in 2022 to 31% in 2024.
Thirdly, the bank considers that the market ignores the positive impact of BEES (Ambev’s B2B digital platform, which shortens the relationship between the brewery and bars and restaurants) on the return on invested capital (ROIC). Finally, UBS BB cites an entry point given the 17% discount for parent company ABI.
According to a Reuters compilation with analysts, of the 14 houses covering the ABEV3 asset, nine have a buy, three neutral and two sell recommendations, with an average target price of R$17.31, which corresponds to an appreciation potential by 31% compared to the close of this Monday.
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