We have a R$11.80 target price on ASAI3. We value ASAI3 using a blended of: 50% on a 10-year discounted cash flow (of free cash flow to equity) model methodology and 50% on a 5-year exit multiple applied to the fifth year net income. Our discount rate (cost of equity) is 16.1%, which is the result of a 4.1% risk-free rate in dollars, 2.5% country risk, 5.5% equity risk premium, 1.37 beta, and a 2.0% inflation differential between Brazil and the US. Nominal growth (g) was set at 4.1%.

We rate ASAI as High Risk mainly given its high leverage amid an uncertain scenario for interest rates.

Other key risks include: 1) changes in the competitive landscape; 2) challenges to pass-through further price inflation; and 3) tax reforms reducing IoC tax benefits.

If the impact on the company from any of these factors proves to be greater or less than we anticipate, the stock could either outperform or underperform our target price.