Ambev

I took a look at Ambev to determine its intrisic value (conservatively).

I projected a growth rate of 6% for 10 years and 3% from then on, with a discount rate of 7%.

My starting point was the average dividend payment from 2008 to 2010 (I took the numbers from the cash flow statements of those years).

I got a average of 3,797M a year, wich implies an intrinsic value of 125,081M. That's very close to the current market value and I demand a discount of 50% (or upside of 100%) to judge it a sound investment.

So I took a second look at the cash flow statements and found a huge reduction in net debt in all 3 years and a big stock repurchase in 2008 (600M). So I added up the negative financing cash flow with the increase in cash holdings to get those results (of course that equals to subtract the investing cash flow from the operational cash flow):

Average cash generated in 2008-2010 period is: 4817 + 7145 + 6888)/3 = 6,283M

Taking this as the starting point, with a 6% growth for 10 years, 3% thereafter and a discount rate of 7%, I calculated an intrinsic value of 206,976M.

As I demand a discount of 50%, I would buy AMBV3 for 33,20 BRL.

Remark: in all 3 years the investiment cash flow was bigger than the depreciation and the operationg cash flow was not inflated by changes in assets.