Brazil: AmBev and Molson profiting from Schincariol troubles

Bear Stearns raised on June 23 its recommendation on Brazilian beverage maker Companhia de Bebidas das Americas (ABV), or AmBev, to “outperform” from “peer perform”, with a price target of $36 on the stock, according to Dow Jones Newswires.

On June 27, Cia. De Bebidas das Americas (AMBV4 BS), or AmBev, a unit of InBev NV, rose 12 reais, or 1.7 percent, to 733 reais.

Primo Schincariol Industria de Cervejas e Refrigerantes SA, Brazil's second largest brewery, will cut output after federal police arrested company executives on charges of tax evasion and corruption. The cuts in production at Schincariol will add “a great deal of volume, scale, market share and Profitability to AmBev's business,'' Laboy wrote in a report. Schincariol denied the accusations.

“We strongly caution against viewing Schincariol’s troubles as an immediate positive for Molson Coors,” Carlos Laboy added. Molson bought the Brazilian brewer Kaiser in 2002, but its performance has been brought into question since Molson and Coors merged earlier this year. Schincariol currently holds around 15% market share in its home country.

Last week, Brazilian federal agents arrested dozens of executives and employees at Schincariol, as well as distributors and members of the company's controlling family, after a tax raid. Brazilian authorities allege that Schincariol and its distributors evaded paying more than BRL1 billion in taxes between 2000 and 2004, noted Bear Stearns.

"We argue that AmBev is the only player in the industry right now that has the ability to pick up the Schincariol volume disruption," said Bear Stearns.

Earlier this month, Bear Stearns had raised its rating on AmBev to peer perform from underperform, saying that the company is unlikely to take part in the bidding for Colombian beer maker Bavaria.

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