2018 Outlook

We estimate a slight macroeconomic recovery in Chile and greater inflation stability in Argentina. In Brazil, recovery of consumption will be gradual, with positive effects on companies in this sector over the medium term. This is compounded by the recent BRL appreciation and lower depreciation of the ARS, resulting in improved operating margins.

Regarding local FX in Chile, we estimate average levels of ~$630, mitigating pressure on margins.

We expect operational improvements from efficiency plans implemented by the companies, particularly CCU and Concha y Toro.

Furthermore, we believe that the risk associated to potential M&A action will continue to condition the stock performance of the companies in the sector.

Finally, CCU is our top pick for the sector, mainly due to operational improvements, growth plans and payment from the transfer of Budweiser in Argentina, which combined with improved macroeconomic conditions, could be very beneficial to the company.

Risks

(+/-) Consumption recovery in Latin American countries greater/lower than expected.

(+/-) Depreciation of local currencies greater/lower than expected.

(+/-) Commodity prices, especially sugar.

(+/-) Political factors affecting dynamism in economies where these companies operate.

(-) Inflationary pressures.

Peers