Are You Ready To Samba?

| About: Ambev - (ABEV)

Summary

Leading position in core Latin American Markets.

Large exposure to Brazil.

Adds diversity into your portfolio.

As the economies in Latin America recover from a historic drop in global commodity prices and the political situations in Argentina and Brazil are resolved Ambev (NYSE:ABEV) offers a way to play the recovery.

Ambev (ABEV) is the leading beer producer and distributor in several Latin American countries where beer sales by volume are estimated to grow (for the region) by 4.4% per year.

Ambev is majority owned by AB-Imbev (62%) and FAHZ (9%). FAHZ has veto power over dividends, acquisitions and investments until 2019.

Ambev dominates several markets in South America including Brazil (64%), Argentina (75%), Bolivia (97%), Paraguay (90%) and Uruguay (97%).

Catalysts for increased sales

As LatAm recovers from the current political and economic problems and GDP begins to grow again beer sales should improve.

The Brazilian President is very close to being impeached. The next President will surely do whatever is necessary to move the country forward economically. Changes are likely at Petrobras (NYSE:PBR) the giant Brazilian oil company at the center of the political scandal that has enveloped a significant number of political actors.

Argentina recently elected a new President and is now reentering the global debt market for the first time in a decade.

Oil and other commodity prices have started to rebound.

Brazil will be hosting the Olympics this year.

Exposure to Latin America

LatAm has always been a volatile place. The last few years have been no exception. With some political changes happening now and the improvement on the commodity front the region may be set to turn around again. Having some exposure to the region is warranted.

Possible Take Over

With AB-Inbev already having a controlling stake in Ambev it wouldn't be surprising if they decided to by the rest of it. This probably won't happen before 2019 when FAHZ's veto agreement runs out. AB-Inbev will need growth and LatAM makes a good fit.

Trade

Shares are trading a bit in no mans land. They aren't terribly expensive or cheap at 18X forward earnings. Investors may benefit by waiting for the market to trade off a bit before initiating a position. But if you want exposure to LatAm I think this company gives it to you in a very measured way.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.