In-Line Q2 for Ambev but Further Cost Pressures Loom

Ambev delivered a second quarter with upside to our expectations on the top line. Organic volume growth of 19% was broad-based and comfortably beat our forecasts. As expected, the gross margin softened, down 50 basis points organically, and we think there is likely to be more pressure to come in the latter half of the year. Ambev is a wide-moat company with dominant market positions and better-than-average pricing power. We have high conviction that even if margins continue to contract this year, the firm will be more than able to offset inflationary pressure in the medium term. We reiterate our BRL 18 fair value estimate, and with the stock having pulled back as commodity prices have continued to rise, we now consider it to be fairly valued.