Published: June 30, 2024
By: Benj Gallander
One of our avid followers e-mailed us on June 1, the day after the S&P/TSX Composite went up by 0.89 per cent and the Dow by 1.5 per cent. He wrote, “What a fabulous day in the markets!” We could almost see him grinning from ear to ear.
The irony was that Benj was staying at a farmhouse in rural Albania, listening to chickens and dogs barking after a day cycling on the world’s second-oldest bike. We mean that there must be one older. At least the brakes worked.
Meanwhile, modern Ben had just finished a bike trip in the Loire Valley in France, on a much better two-wheeler, re-energized on yummy food and fine wine to be sure. Many moons ago, Benj led bike tours through the area for Butterfield & Robinson. Oh, to go back to those days!
These types of getaways are a fabulous way to recharge the batteries, and they are made possible by having our assets and investments do the work for us while we play. Work can be a wonderful thing, and for us at Contra the Heard over the past 30 years it has been. But balance is essential, albeit that varies from one person to another.
Which company represents balance? Well, Brazil-based Ambev SA ( ABEV-N +0.49%increase ), a subsidiary of beverage giant Anheuser-Busch InBev SA/NV, has a market cap of US$32.75-billion, and it might be the ticket. This enterprise likely sells your drink of choice, as not only does it vend alcoholic beverages such as Stella Artois, Corona, Mike’s and Hoegaarden, but also carbonated and energy drinks, water and more. It has been doing this for a long time, as it was founded in 1885.
Recently, however, the stock has fallen on challenging times, down from above US$9 where it traded just over a decade ago, to near the US$2 mark today. That smells like skunky beer.
But Ambev has much to offer. Revenues are growing, it makes money year after year – albeit earnings are about half of what they were a decade ago – and it trades at less than half of the book value of US$5.50 per share. Debt is nominal at US$3.82-billion, when compared to revenues north of US$79-billion. And it is easy to trade, averaging close to 16 million shares a day for the last three months.
One problem with investing in this company is that the dividend is not dependable. It paid one in 2023, two in 2021, two in 2018 and three in 2017, missing the years in between. Previous to that was the same scattergun pattern, thus, it is difficult to rely on this outfit for a constant return. The dividend payout ratio is about 80 per cent.
Another major consideration is currency risk; indeed, the stock’s poor performance has a lot to do with the fall of the Brazilian real. Moreover, with operations in 16 countries, there are a lot of currencies at play. Ambev’s market share varies widely by country, with the strongest being 96 per cent in Bolivia, 95 per cent in Uruguay, 81 per cent in Argentina and 68 per cent in its home base of Brazil. Scroll down from there.
Alcohol can be a beautiful investment. The impacts of business cycles are nominal as pointed out by a Cambridge University study. During good times, people drink to celebrate, and during downtimes, to drown their sorrows. There is a change in the place of consumption as people tend to gravitate toward home to imbibe during tougher times, the logic being that drinking is cheaper there.
The initial sell target for Ambev is US$7.24, where it traded about a decade ago. It did shoot briefly over US$9, but has languished under US$3.50 for the past five years. We’ll relax by downing some of their products while patiently waiting for a much higher stock price. And of course, drinking beer is environmentally friendly. As they say, “Save water, drink beer.”