Ambev Earnings: Big Step In the Right Direction on Margins but Upside Remains

Ambev reported a decent third quarter, with trends indicating stability in the consumer environment and a normalization of the growth algorithm in Brazil. Revenue was slightly below our forecasts, mainly due to weakness in South America, but this is outweighed by the easing of inflationary pressures and margin improvement, in our opinion. We are maintaining our BRL 18 per share fair value estimate and our wide moat rating. Although the market reacted positively in early trading on Oct. 31, we still see upside to our valuation. We regard Ambev as being a quality business with very high market shares, albeit with above-average cyclicality and risk relative to other global consumer staples companies, and the shares are attractively valued.