Ambev: An emerging market company with a solid ROIC.

Ambev is the largest brewer in Latin America and a market leader in Brazil, with iconic local brands like Skol, Brahma, and Guaraná Antarctica alongside global names such as Budweiser and Corona. Backed by a powerful distribution network, strong digital platforms, and disciplined cost control, the company consistently delivers high returns and strong cash flow. As it expands into categories like non-alcoholic beer and ready-to-drink cocktails, the question is: Can Ambev continue to create long-term value for investors?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me

For full disclosure, I should mention that I do not own any shares in Ambev at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Ambev, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Ambev is the largest brewery in Latin America and one of the largest beverage companies globally, headquartered in São Paulo, Brazil. It produces and distributes beer, soft drinks, and other beverages across 18 countries, including Brazil, Argentina, Canada, and much of Central and South America. The company was formed in 1999 through the merger of two historic Brazilian brewers, Brahma and Antarctica, and now operates as a subsidiary of Anheuser-Busch InBev. Its portfolio includes some of the most recognized brands in Brazil, such as Skol, Brahma, and Antarctica - all of which rank among the most consumed beers in the country. In fact, these three occupy the top spots in Brazil’s beer market, and all are also ranked among the top 10 most valuable brands across all categories in Brazil, according to Kantar’s 2024 study. This level of brand strength creates a deep moat around Ambev’s core business. The company also owns Guaraná Antarctica, Brazil’s second most popular soft drink, and has exclusive bottling rights for Pepsi in Brazil and other countries, further strengthening its position in the non-alcoholic beverage segment. Ambev has a powerful distribution system that allows it to deliver drinks to more than one million shops, bars, and restaurants across Brazil. In big cities, it often handles deliveries itself. In other areas, it works with over 200 dedicated local distributors. On top of that, Ambev uses apps like Zé Delivery to sell directly to consumers and BEES to serve small businesses. This mix of physical reach and digital tools makes it easy for customers to buy Ambev products anytime, anywhere. Its competitive advantages also stem from economies of scale, disciplined cost control, and operational efficiencies shared across the AB InBev network. With strong brand equity, unmatched distribution reach, exclusive partnerships, and a focus on cost and digital innovation, Ambev maintains a durable competitive moat in one of the most lucrative beer markets in the world.

Management

Carlos Eduardo Klutzenschell Lisboa serves as the CEO of Ambev, a role he assumed on January 1, 2025, after more than three decades with the company. He began his career at Ambev in 1993 and has since held numerous leadership positions across the organization and its parent company, Anheuser-Busch InBev (AB InBev). His roles have included Vice President of Marketing at Ambev, President of Labatt in Canada, Global Vice President of Global Brands at AB InBev, President of the Latin America South Zone at Ambev, and President of the Middle Americas Zone at AB InBev. Carlos Lisboa holds a degree in Business Administration from the Catholic University of Pernambuco and has completed a marketing specialization from FESP in Brazil. Throughout his career, he has been recognized for his ability to build strong brands and his deep understanding of consumer behavior. Notably, he played a key role in developing the Skol brand in Brazil in 2001. In his leadership approach, Lisboa emphasizes the importance of dreaming big, maintaining an ownership mentality, and adhering to ethical practices without taking shortcuts. He brings a wealth of experience from both developed markets like Canada and emerging markets in Latin America, which he believes positions him well to guide Ambev into a promising future. I believe that the combination of Carlos Lisboa's leadership style and extensive experience makes him the right person to lead Ambev going forward.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Ambev has consistently achieved a ROIC of over 15% for the past decade, which is highly encouraging. There are several reasons why Ambev has been able to maintain such high ROIC levels. The company owns the top beer brands in Brazil - Skol, Brahma, and Antarctica - as well as several leading labels across Latin America and Canada. These brands enjoy strong consumer loyalty and pricing power, which supports healthy profit margins and strong returns. As the largest brewery in Latin America, Ambev benefits from significant economies of scale in production, distribution, and marketing. This scale advantage reduces per-unit costs and enhances returns on every dollar invested. The company is also known for its disciplined cost management culture, including the use of zero-based budgeting, which helps keep operations efficient and capital deployment lean. In addition, while Ambev owns core production and logistics infrastructure, it works extensively with third-party distributors and franchise bottlers, such as for PepsiCo products. This hybrid model helps lower capital requirements and keeps invested capital relatively low. Beer itself is a high-margin product, especially when sold under established brands that require minimal reinvestment. The expansion of digital platforms like Zé Delivery and BEES has further helped protect margins and drive growth. Finally, Ambev's parent company, AB InBev, places a strong emphasis on ROIC across its global operations. This mindset influences how Ambev runs its business—only putting money into projects that are likely to pay off well, avoiding overexpansion, and carefully managing its day-to-day cash needs. Given these factors, I believe Ambev is well-positioned to continue delivering high ROIC in the years ahead.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Ambev has managed to increase its equity in most years over the past decade, with only three years showing a decline. In 2024, the company reached a record-high level of equity. This increase was mainly driven by two factors: first, Ambev posted a strong profit of R$14,8 billion for the year; and second, the value of its foreign operations rose when converted into Brazilian reais, which further boosted its equity.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising that Ambev has managed to deliver a positive free cash flow every year in the past ten years. It is encouraging that Ambev reached its highest free cash flow ever in 2024. This growth came from running the business more efficiently, spending wisely, and keeping costs under control. Digital tools like BEES and Zé Delivery also made it easier to reach customers and handle orders, which helped bring in more cash. Ambev consistently reports a high free cash flow margin, well above that of many competitors. This is due to its strong brand portfolio, scalable operations, lean cost structure, and disciplined approach to capital spending. The company also manages its working capital efficiently, turning revenue into cash quickly. Ambev plans to use its free cash flow to keep reinvesting in organic growth, pursue attractive acquisitions, and continue returning cash to shareholders through buybacks and dividends. Hence, investors can expect fewer shares outstanding and higher dividends in the future. The free cash flow yield is at its highest level in more than a decade and suggests that the shares are trading at an attractive valuation. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a period of three years. We assess this by dividing total long-term debt by earnings. After reviewing Ambev’s financials, I found that the company currently has no debt, which is of course excellent. Debt is clearly not a concern when it comes to Ambev. In fact, since 2009, the company has consistently maintained debt levels below one year’s worth of earnings—further reinforcing that debt is unlikely to become an issue in the future.

Exclusive Discounts on Seeking Alpha – Elevate Your Investing Today!

For those serious about investing, here's your chance to upgrade your strategy with exclusive offers you won't find anywhere else. These special discounts are available only through the links below—don’t miss out!

1. Seeking Alpha Premium: Access comprehensive financial data, earnings transcripts, in-depth analysis, market news, and more. Perfect for investors who want an edge in making informed decisions.

   Special Price: $269/year (originally $299) + 7-day free trial.

   Sign up for Premium here.

   
   

2. Alpha Picks: Get stock recommendations from a portfolio that gained +177% compared to the S&P 500's +56% from July 2022 through the end of 2024.

   Special Price: $449/year (originally $499).

   Sign up for Alpha Picks here.

   
   

3. Alpha Picks + Premium Bundle: The ultimate investment package with a $159 discount!

   Special Price: $639/year (originally $798).

   Get the Bundle here.

   
   

I use Seeking Alpha daily for its reliable insights and actionable strategies. These deals are available exclusively through my links, so take advantage of them now to level up your investment journey!

Act quickly - these prices won't last forever!

Risks

Competition is a risk for Ambev. The beverage industry is becoming increasingly fragmented, dynamic, and complex as consumer preferences evolve rapidly across different markets. New tastes, health trends, and premiumization are reshaping demand, and this puts pressure on established players like Ambev to innovate and adapt continuously. In this changing environment, competitors may be able to respond faster to emerging trends, giving them an advantage in capturing consumer attention and loyalty. Ambev faces competition not only from global and regional brewers but also from companies producing non-alcoholic beverages, craft breweries, and low-alcohol alternatives. Some competitors - like Heineken, which is Ambev’s largest rival in Brazil - are aggressively investing to expand their market share. Heineken recently announced a $300 million investment in Brazil to grow its premium and single malt beer portfolio. If successful, such moves could pressure Ambev to spend more on marketing, product development, and capital investments, potentially reducing its margins and making it more difficult to pass on cost increases to consumers. Additionally, Ambev competes on several fronts: brand image, pricing, quality, customer service, and distribution reach. While Ambev has strong brands, some competitors may outspend the company on marketing or undercut prices, which can erode market share or force Ambev to reduce its prices to remain competitive. This would directly impact profitability. Innovation also carries risks. Not every new product will succeed, and if Ambev is slow to introduce new offerings or fails to meet evolving consumer expectations, it risks losing relevance - especially among younger or premium-focused consumers.

Commodity prices are a risk for Ambev because a large part of the company’s production and distribution costs depends on raw materials whose prices it cannot control. These include key inputs such as barley, hops, sugar, corn, wheat, aluminum for cans, PET for bottles, and various energy sources. Since these materials are global commodities, their prices are influenced by external factors like changes in global supply and demand, geopolitical instability, trade restrictions, currency movements, and extreme weather events. This means Ambev can face sudden increases in costs, even if nothing changes in its own operations. In 2024, for example, Ambev experienced volatility in prices for several important commodities. Aluminum prices fluctuated by nearly 28%, PET by more than 30%, and sugar by roughly 28%. Such price swings can significantly raise the cost of goods sold, especially since these materials make up a substantial share of Ambev’s total operating expenses. If raw material costs rise and Ambev cannot pass those increases on to consumers - due to competition or weak demand - its profit margins and earnings will come under pressure. This challenge could worsen as climate change affects crop yields (such as barley or sugar), drives up energy costs through carbon pricing, or causes more frequent supply chain disruptions. In short, Ambev’s cost base is heavily tied to commodity markets that are unpredictable and increasingly vulnerable to environmental disruption. Any sharp or sustained rise in input costs - especially if the company is unable to offset it through pricing power or efficiency gains - could hurt its profitability.

Laws and regulations - particularly in Brazil - pose a significant risk to Ambev due to the complexity, unpredictability, and constant evolution of the country’s tax, trade, and economic policies. As Ambev’s most important market, Brazil’s regulatory landscape directly influences the company’s profitability, cost structure, and long-term planning. Taxation is a key concern. The beverage industry in Brazil is heavily taxed, especially on beer and soft drinks, with rates that vary by state and can change frequently at the federal, state, or municipal level. In recent years, multiple states have raised value-added tax rates on beverages, increasing Ambev’s production and sales costs. At the same time, tax incentives that have historically supported Ambev’s operations - particularly in the Manaus Free Trade Zone - are being phased out, adding to the company’s tax burden. Further complicating matters, Brazilian tax laws are often open to interpretation, and disagreements with tax authorities can lead to legal disputes, penalties, or retroactive liabilities. Beyond taxation, the broader political and economic environment in Brazil heightens regulatory risk. Frequent policy shifts, inflation, high interest rates, and political volatility create an unstable backdrop. These conditions may prompt the government to adopt new fiscal measures, such as tariffs or targeted industry taxes, which can weaken Ambev’s competitiveness or reduce consumer demand. Ambev is also subject to scrutiny under Brazil’s antitrust laws. Given its dominant position in the beer market, regulators closely monitor its practices. Even with a compliance program in place, the risk of investigations or sanctions remains. In short, the legal and regulatory environment in Brazil is not only complex but also highly dynamic. Shifting tax frameworks, political uncertainty, and inconsistent enforcement make it difficult for Ambev to operate with predictability or plan for the long term.

Reasons to invest

Ambev’s strong portfolio of beer brands is a key reason to invest in the company. Across Brazil and the broader Latin American region, Ambev holds a leadership position in the beer category with a unique combination of well-established local brands and globally recognized names. In Brazil alone, Ambev’s three flagship brands - Skol, Brahma, and Antarctica - play a complementary role across different regions and consumer segments, giving the company broad geographic and demographic reach. Skol, for example, is the most consumed beer in 17 states and has been tried by half of Brazil’s consumers in the past three months, reflecting its deep cultural relevance. Brahma and Antarctica also continue to show strong momentum and top-line contribution. Ambev doesn’t just rely on heritage brands. In recent years, the company has successfully expanded its portfolio with global labels such as Stella Artois, Budweiser, and Corona, creating new consumption occasions and appealing to more premium and diversified consumer tastes. The combination of powerful domestic and international brands enables Ambev to lead the beer category, while meeting evolving preferences across price points, formats, and occasions. This leadership is particularly valuable because the beer category itself remains strong and culturally relevant in Latin America, where more than 95% of Ambev’s volume comes from. Despite being a mature market, Brazil still shows significant room for growth. Per capita beer consumption remains lower than in peer countries like Mexico, and beer drinking is heavily concentrated on weekends. This creates a structural opportunity to expand both the number of consumers participating in the category and the number of occasions in which beer is consumed, including weekday meals and informal social gatherings. Population growth and rising income levels among Brazil’s lower socioeconomic groups further enhance this long-term potential.

Digitalization is a compelling reason to invest in Ambev, as the company has made significant strides in transforming itself into a more agile, data-driven, and customer-centric organization. Today, more than 88% of Ambev’s gross revenues are processed through BEES, its proprietary B2B platform, which is now active in eight of the company’s ten largest markets. With over 1,3 million monthly active buyers, BEES gives Ambev unprecedented reach and visibility across its retail network, allowing it to better tailor product assortments, optimize delivery, and respond faster to customer needs. Zé Delivery, Ambev’s direct-to-consumer platform in Brazil, has also become a core part of its digital ecosystem, fulfilling more than 66 million orders in 2024 alone. This platform not only makes it easier for consumers to access Ambev’s products conveniently at home, but also strengthens brand loyalty and generates valuable consumer data. Together, BEES and Zé Delivery enable Ambev to have one-on-one interactions with both customers and consumers, creating a feedback loop that enhances decision-making and product targeting. Ambev’s digital transformation is also creating new business opportunities. Through its BEES Marketplace, the company is becoming a one-stop shop for small retailers, offering not just its own beverages but also a growing range of third-party products. In 2024, sales on the platform grew by nearly 50%, driven by new partnerships. What makes this especially attractive is that Ambev didn’t need to spend much to make this happen. Because it already has a strong logistics network and warehousing in place, it can expand these digital services without major new investments. As a result, even though margins on marketplace sales are lower, the returns on investment remain very high. These digital ventures not only create new revenue streams, they also strengthen Ambev’s core business by improving service, reducing friction in the supply chain, and deepening customer relationships. Over time, this digital ecosystem positions Ambev to defend and expand its market leadership, improve margins through efficiency gains, and continue compounding shareholder value.

Beyond traditional beer is an important reason to invest in Ambev because the company is successfully expanding into fast-growing categories like non-alcoholic beer, canned cocktails, and zero-sugar soft drinks. These newer segments give Ambev access to a broader range of consumers and consumption occasions, helping the company grow beyond its core beer market. Ambev is already the leader in the non-alcoholic beer category in its region, with brands like Corona Cero and Budweiser Zero growing at strong double-digit rates. This segment is still underdeveloped in Latin America compared to more mature markets, leaving significant room for growth. Non-alcoholic beer also allows Ambev to target health-conscious consumers and extend beer consumption into times or settings where alcohol might not be appropriate. In soft drinks, Guaraná Antarctica continues to perform well, especially with the launch of Guaraná Antarctica Zero. The sugar-free version is winning over consumers who say it tastes just like the original, which could help Ambev attract new buyers without cannibalizing its core soft drink business. Ambev is also finding success in ready-to-drink alcoholic beverages. After launching canned Caipirinhas in 2022, it followed up with “Tropical,” a gin-based cocktail, which quickly surpassed the original in sales. This suggests that Ambev has the ability to tap into changing consumer preferences and build new product lines from scratch. Altogether, these developments show that Ambev is not just defending its core beer business - it’s actively building new growth engines. As consumer tastes evolve, the company’s ability to innovate beyond beer makes it more resilient and better positioned to grow in the years ahead.

Support the Blog

I want to keep the blog free and accessible for everyone. If you enjoy the content and would like to support it, you can buy me a cup of coffee through PayPal. Every little bit helps and is truly appreciated!

Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

Remember that the numbers used in these calculations are in Brazilian Real. The Brazilian Real can fluctuate significantly. Thus, if you are planning to purchase shares in Ambev, remember to check the exchange rate on the day you are making the purchase.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 0,91, which is from 2024. I have selected a projected future EPS growth rate of 10%. Finbox expects EPS to grow by 10,6% a year in the next five years. Additionally, I have selected a projected future P/E ratio of 14, which is twice the growth rate. This decision is based on Ambev's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be R$ 11,67. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Ambev at a price of R$ 5,83 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 26.099, and capital expenditures were 4.749. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 3.324 in our calculations. The tax provision was 4.640. We have 15.728 outstanding shares. Hence, the calculation will be as follows: (26.099 – 3.324 + 4.640) / 15.728 x 10 = R$ 17,43 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Ambev's Free Cash Flow Per Share at R$ 1,36 and a growth rate of10%, if you want to recoup your investment in 8 years, the Payback Time price is R$ 17,11.

Conclusion

I believe that Ambev is an intriguing company with solid management. It has built a moat through strong brand equity, unmatched distribution reach, exclusive partnerships, and a disciplined focus on cost and digital innovation. The company has consistently achieved a high return on invested capital and is likely to continue doing so. In 2024, Ambev delivered its highest free cash flow ever and maintains the best levered free cash flow margins in its sector. Competition is a risk for Ambev, as shifting consumer preferences and aggressive moves by rivals like Heineken may force the company to increase spending on innovation and marketing, potentially pressuring margins and market share. Commodity prices are another risk, as Ambev depends heavily on inputs like barley, sugar, and aluminum - commodities subject to global volatility. Sharp increases in these costs can squeeze margins if the company cannot pass them on to consumers. Laws and regulations - especially in Brazil - pose additional challenges due to frequent tax changes, complex compliance rules, and political unpredictability. These factors can raise costs, lead to legal disputes, and complicate long-term planning. Ambev’s strong mix of local and global beer brands gives it broad consumer appeal and category leadership across Latin America. This positions the company well to benefit from rising incomes and underpenetrated beer consumption in markets like Brazil. Digitalization is also a key reason to invest. Its platforms, BEES and Zé Delivery, are transforming how Ambev serves retailers and consumers - improving efficiency, strengthening relationships, and unlocking new revenue streams with limited capital investment, which supports high returns and long-term growth. Beyond traditional beer, Ambev is successfully expanding into fast-growing categories like non-alcoholic beer, canned cocktails, and zero-sugar soft drinks. These innovations broaden its consumer base, open new growth avenues, and make the business more resilient as tastes evolve. I believe Ambev is a strong company, and buying shares below the Payback Time and Ten Cap price of R$17 could be a good long-term investment - if you can stomach the volatility of the Brazilian market.

My personal goal with investing is financial freedom. It also means that to obtain that, I do different things to build my wealth. If you have some extra hours to spare each month, you can turn a few hours a week into a substantial amount of money in a few years. If you are interested to know how to do it, you can read this post.

I hope you enjoyed my analysis! While I can’t post about every company I analyze, you can stay updated on my trades by following me on Twitter. I share real-time updates whenever I buy or sell, so if you’re making your own investment decisions, be sure to follow along!

Some of the greatest investors in the world believe in karma, and in order to receive, you will have to give (Warren Buffett and Mohnish Pabrai are great examples). If you appreciated my analysis and want to get some good karma, I would kindly ask you to donate a bit to The Sea Turtle Foundation. If you have enjoyed the analysis and want some good karma, I hope that you will donate a little to help these fantastic animals through The Sea Turtle Foundation here. Even a little will make a huge difference to save these wonderful animals. Thank you.