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Companhia de Bebidas das Américas 10 July 2008

Update Report – 1Q 08 Results

Revenue growth impacted by Brazil’s volume decline in 1Q 08

Preferred BUY Fundamental research indicates a 45% upside in the preferred stock over the next 6-12 months. We
Direct access the
have calculated to target
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Stock http://www.iirgroup.com/researchoracle/viewreport/show/20283
prices obtained by using DCF and comparative valuation methodologies.
Ticker: AMBV4.SA
Target price: BRL138.941
Current price: BRL96.002 We reiterate the preferred stock a BUY with a 6-12 month target price of BRL138.94 per share.

ADR BUY The ADR is expected to rise 81% over the next 6-12 months. Approximately 36 percentage points of
this upside is purely attributable to the anticipated appreciation of the Brazilian real against the US
dollar over the same period. We are taking a 6-12 month investment horizon for this stock as we
expect a significant positive currency impact on the ADR over the medium term3.
Ticker: ABV
Target price: US$106.87
Current price: US$59.19 We reiterate the ADR (1 ADR = 1 preferred share) a BUY with a 6-12 month target price of US$106.87

Supervisor: Jinesh Joshi Investment horizon – short term actionable trading strategies
Analyst: Prashant Gattani
Editor: Adil Bahar, PhD This report addresses the needs of strategic investors with a long term investment horizon of 6-12 months. If
this report is provided to you by your broker under the Global Settlement, you may now also access (free of
Global Research Director: charge) the short term trading outlook that we publish from time to time for this issuer, looking at the coming
Satish Betadpur, CFA 5-30 days for readers with a shorter trading horizon. These are available on-line only at
www.researchoracle.com.
Next news due:
2Q 08 results, Aug 2008
Report summary
Companhia de Bebidas das Americas’ (Ambev) 1Q 08 net revenues and operating income were below
our estimates, while adjusted3 net income was above our estimate. The company reported lower than
expected results and attributed the decline in volume growth to wet and cold weather conditions, The
company reported lower than expected results and attributed the decline in volume growth to early
arrival of the carnival festival season and unexpected colder weather conditions during the period
which resulted in lower than expected beer and other drinks consumption during the quarter. A high
inflation environment, coupled with a 5.6% y-o-y (excluding currency translation effect) increase in
Average Selling Price (ASP) which was ahead of competition, in 1Q 08 was also the reason for decline
in volumes, However, we believe volume growth will be in line with our prior estimates once
competitors increase prices due to high cost of input raw materials.. We also believe the proposed
plans of Inbev, the largest share holding company of Ambev, to acquire Anheuser-Busch will not affect
the minority shareholders’ interests of Ambev as Inbev Management announced it will not use Ambev
for financing its deal. In light of these factors, we continue to view the Ambev preferred stock as an
attractive investment opportunity from current levels.
Currency impact for US Investors
The impact by itself of the anticipated currency movements on the ADR (now US$58.07), without
considering changes in the share price, is positive and is expected to be:

Over 6 months: US$60.00

Over 12 months: US$73.85

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