Mexico: Modelo’s negotiations with AB InBev will lead to some sort of a continuation of the status quo” – UBS Pactual

UBS Pactual has started coverage of Mexican brewer Grupo Modelo with a buy rating based on the company's valuation, Dow Jones reported on March, 31.

UBS Pactual said it expects Modelo's net profit and earnings before interest, taxes, depreciation and amortization to get a material boost next year and in 2011 as currency hedges on the firm's export revenues are unwound.

"The bigger issue we see with Modelo, the relationship with Anheuser-Busch InBev, is not clear-cut enough to define the investment case," UBS said.

AB InBev has a noncontrolling 50% stake in Modelo, which it obtained through Belgian brewer InBev's takeover of U.S.-based Anheuser-Busch last year.

Modelo, maker of top U.S. import beer Corona, is currently in arbitration, saying the tie-up between InBev and Anheuser-Busch violates provisions of the investment agreement between the Mexican company and Anheuser-Busch.

Under Modelo's 50-50 partnership with Anheuser-Busch, local investors maintained management control.

"We believe the ongoing negotiations with AB InBev will lead to some sort of a continuation of the status quo," UBS Pactual said. "At this point, we don't expect a takeout of Modelo or a full buyback of AB InBev's interests in the near term."

UBS has a 12-month price target on Modelo's stock of 52.50 pesos ($3.65) a share.

01 April, 2009