Thanks, I have no opinion. the time to buy was before Milei looking at the charts. Banks are a tough one and the integrity and history of management needs to be analysed.
thats because all these companies move in line with Latam currencies that are cycliclal and commodity hedges in general. Also they get rerated when EMs get into fashion (commodity booms). Covid time was different than the norm.
On $ABEV, I believe the company is acting rational with its capital allocation policy. A strong balance sheet was indeed desired, both 1) to help the parent AB Inbev (who was over-levered), and 2) to optimise taxes.
On the latter, In Brasil companies with a strong balance sheet can enjoy tax advantages by distributing Interest On Capital (IOC) aka Interest on Net Equity (IoNE) to shareholders. This tax advantage is to be gradually reduced. I understand that the there is still quite some uncertainty on tax reforms in the country. My best guess, is that once there’s more clarity, ABEV will optimize its corporate structure for the new tax policies…and we may start to see even higher returns to shareholders.
With the IOC policy there was a tax incentive against doing large return to shareholders. That incentive is waning for ABEV.
Olivier, thank you. I would like your opinion on Argentinian banks? BMA GGAL etc?
Thanks, I have no opinion. the time to buy was before Milei looking at the charts. Banks are a tough one and the integrity and history of management needs to be analysed.
Wonderful post. Many interesting ideas.
I am curious to know your reasoning for considering the Coca Cola bottlers cyclical/commodity hedges.
thats because all these companies move in line with Latam currencies that are cycliclal and commodity hedges in general. Also they get rerated when EMs get into fashion (commodity booms). Covid time was different than the norm.
I think Cosan actually does trade below 1 P/NAV. They have a nav calculator on their website.
I didn't know Cosan, it's an interesting case if they manage well debts.
Thanks for sharing.
Tx Olivier.
On $ABEV, I believe the company is acting rational with its capital allocation policy. A strong balance sheet was indeed desired, both 1) to help the parent AB Inbev (who was over-levered), and 2) to optimise taxes.
On the latter, In Brasil companies with a strong balance sheet can enjoy tax advantages by distributing Interest On Capital (IOC) aka Interest on Net Equity (IoNE) to shareholders. This tax advantage is to be gradually reduced. I understand that the there is still quite some uncertainty on tax reforms in the country. My best guess, is that once there’s more clarity, ABEV will optimize its corporate structure for the new tax policies…and we may start to see even higher returns to shareholders.
With the IOC policy there was a tax incentive against doing large return to shareholders. That incentive is waning for ABEV.