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Boston Beer Company Valuation

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  • great job on your research! was wondering where you got the percentages between twisted tea, sam adams, and hard cider in slide 12 under diverse product portfolio?
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  • Recent acquisition of Anheuser Busch by Inbev and the joint venture of Miller Brewing Company and Coors Brewing Company to create Miller Coors LLC Miller Coors Sells: Miller Lite Coors Light, BLUE MOON, Killian Irish Red Milwaukee's Best, Foster’s, Keystone Boston Beer sells its product mainly in the US, but also markets them in Canada, Europe, Israel, Pacific Rim, Mexico and the Caribbean. 99% of revenue comes from US but, but also markets them in Canada, Europe, Israel, Pacific Rim, Mexico and the Caribbean. Further, these two major brewers have entered the Better Beer category recently, either by developing their own beers, acquiring, in whole or part, existing craft brewers, or by importing and distributing foreign brewers’ brands. On January 11, 2010, Heineken N.V. (“Heineken”) announced its acquisition of the beer operations of Fomento Economico Mexicano, SAB de CV (“FEMSA Cerveza”) which will make Heineken the number two brewer internationally by revenue and significantly increase Heineken’s ownership position in the Better Beer Market with the addition of FEMSA Cerveza brands, including Dos Equis ®, Sol® and Tecate®.
  • “ Determined by higher price, quality, image and taste, as compared with regular domestic beers”(10-k) Better Bear includes most imports and specialty beers Primarily but not entirely within the Better Beer Category In the Better bear category only behind Corona and Heineken Further, these two major brewers have entered the Better Beer category recently, either by developing their own beers, acquiring, in whole or part, existing craft brewers, or by importing and distributing foreign brewers’ brands. Heineken N.V. (“Heineken”) announced its acquisition of the beer operations of Fomento Economico Mexicano, SAB de CV (“FEMSA Cerveza”) which will make Heineken the number two brewer internationally by revenue and significantly increase Heineken’s ownership position in the Better Beer Market with the addition of FEMSA Cerveza brands, including Dos Equis ®, Sol® and Tecate®.
  • Beer Category was flat but Craft Beer rose 12%
  •   -SAM is heavily dependent on about 400 wholesale distributors sell to retailers (pubs, restaurants, grocery chains) -These distributors are the same distributors used by AB InBev and SABMiller and are often influenced by these larger companies. -SAM holds this same distribution advantage over smaller regional breweries. -Distributors can terminate service on very short notice and there is no guarantee SAM could find other distributors offering comparable prices. Beer is produced at breweries The second tier is distribution. Producers will often provide exclusive rights to a certain company to distribute its product to different retailers, and the post-prohibition landscape usually makes distributors powerful entities within each individual state. This reduces competition and can raise prices, since fewer distributors mean less incentive to reduce prices. Some states also have regulations further defining the relationship between the brewer and a distributor, even going as to legally bind a brewer to a distributor. This can create a headache for consumers since disputes between brewers and distributors can result in certain beers becoming unavailable in an area. The third tier is retail. This is the point at which the general consumer can purchase the product, whether that be a grocery store, bar or state-regulated vendor. As with many things, there is an exception: brewpubs - restaurants or pubs that produce beer on site for sale on site.
  • Percentage numbers emphasis
  • Blue boxes – too strong
  • Transcript

    • 1. Group 4 Jose Aleman Andrew Fulham Scott Sorensen Stephanie Soybel Taylor Williams Boston Beer Company
    • 2. Recommendation
      • We value Boston Beer Company (NYSE: SAM) at $63.38 per share, and recommend that investors hold these securities.
        • Current Market Price of $65.21
        • Increased competition will hinder revenue growth and company expansion
        • Market Growth within Industry Stagnation
    • 3. Agenda Overview Financials Strategy Valuation
    • 4. Boston Beer Company History
        • Jim Koch founds Boston Beer
      1984
        • IPO at $20 per share
      1995
        • Twisted Tea launched
      2001
        • Sam Adams Light launched
      2002
        • Purchase of PA brewery
      2007
        • Product recall in April
      2008 Overview Financials Strategy Valuation
    • 5. Boston Beer Feels Competition from All Sides Imports Wine & Spirits Craft Beers Industry Leaders Overview Financials Strategy Valuation
    • 6. Consolidation of Domestic Beer Production Source: www.ibisworld.com Overview Financials Strategy Valuation
    • 7. Domestic Beer Production is Decreasing Source: www.ibisworld.com Overview Financials Strategy Valuation
    • 8. Boston Beer operates within the “Better Beer” category Craft, Import, and Specialty Beer 20% of Domestic Beer Market Category profitability realized by Major Brewers Samuel Adams is the largest domestic brewer and 3 rd largest Brewer in the Better Beer Category Overview Financials Strategy Valuation
    • 9. Craft Beer: Growth within Stagnation Craft Beer experienced 12% growth in 2009 6 th Straight year this category has outperformed the Beer Industry
      • Major Craft Beers:
        • Sam Adams
        • Sierra Nevada
        • New Belgium
      Craft Beer drinkers are loyal to the Craft Beer Industry Overview Financials Strategy Valuation
    • 10. Boston Beer sells 2 of the top 3 Craft Beers Source: Beverage Industry Magazine Top Selling US Craft Beers in 2009 1) Sierra Nevada Pale Ale 2) Samuel Adams Boston Lager 3) Sam Adams Seasonal 4) New Belgium Fat Tire Amber Ale 5) Shiner Bock 6) Widmer Hefeweizen 7) Sam Adams Variety Pack 8) Sam Adams Lite Overview Financials Strategy Valuation
    • 11. 3 Tier Distribution System Brewery Wholesalers Retailers Overview Financials Strategy Valuation
    • 12. Diverse Product Portfolio 8 Flavored Malt Beverages (13%) 20 Unique Beers (87%) 1 Hard Cider (0.06%) Boston Beer Co. (SAM) Overview Financials Strategy Valuation
    • 13. Current Market Analysis Overview Financials Strategy Valuation
    • 14. Market Opportunities and Risk Overview Financials Strategy Valuation
    • 15. Overview Financials Strategy Valuation
    • 16. Historical Revenue Growth Overview Financials Strategy Valuation
    • 17. Projected Revenue Overview Financials Strategy Valuation
    • 18. Cost of Goods Sold Overview Financials Strategy Valuation
    • 19. Financial Analysis Financial Analysis Source: Global Business Browser
        • Can finance its own capital expenditures
        • ABInbev:12.55%
        • SABMiller:10.6%
      Net profit margin of 7.5% in 2009 Boston Beer has no short or long term debt Overview Financials Strategy Valuation
    • 20. Overview Financials Strategy Valuation
    • 21. Competitive Strengths Overview Financials Strategy Valuation Consumer preferences are shifting towards premium beer Leadership built on scale, quality and branding Agreements with suppliers and distributors yield stability and predictability.
    • 22. Threats
      • Increasingly competitive segment
        • Low switching costs among consumers
        • Intensified efforts from industry leaders to penetrate the market
        • Low barriers to entry at the microbrewer level
      • Need to increase differentiation from premium products in wine and spirits industry
      Overview Financials Strategy Valuation
    • 23. Opportunities
      • Geographic expansion
        • Domestic
        • International – Emerging markets
      • Risks
        • Direct competition with regional brewers
        • Competition with major industry leaders
      • Product diversification
      Overview Financials Strategy Valuation
    • 24. Overview Financials Strategy Valuation
    • 25. Discounted Cashflow Analysis Base Case 2010 2011 2012 2013 2014             Total Revenue $480.69 $547.99 $624.71 $ 712.17 $811.87 Cost of Revenue, Total 217.09 247.48 282.13 321.63 366.65 Gross Profit 263.61 300.51 342.58 390.55 445.22             Income After Tax 45.04 51.34 58.53 66.73 76.07 Depreciation 10.19 11.62 13.25 15.10 17.21 Δ NWC 7.27 8.29 9.45 10.77 12.28 Discounted Cashflow $44.08 $46.19 $48.40 $50.71 $53.13 Perpetuity Growth 3.5% Terminal Value $657.57 Enterprise Value $900.07     Debt to Equity Ratio 0 Equity Value per Share $63.38         Current Market Value $65.21 Overview Financials Strategy Valuation
    • 26. Best and Worst Cases Base Optimistic Pessimistic Revenue Growth Rate 14% 16% 12% COGS % of Revenue 42% 41% 43% Perpetuity Growth Rate 3.5% 4% 3% Equity Value per Share $63.38 $77.07 $52.54 Current Market Value $65.21 Overview Financials Strategy Valuation
    • 27. Sensitivity Analysis Overview Financials Strategy Valuation
    • 28. Sensitivity Analysis Overview Financials Strategy Valuation
    • 29. Recommendation
      • We value Boston Beer Company (NYSE: SAM) at $63.38 per share, and recommend that investors hold these securities.
        • Current Market Price of $65.21
        • Increased competition will hinder company expansion
        • Market Growth within Industry Stagnation
    • 30.
      • Appendices
    • 31. Five Forces Summary
    • 32. Larger Competition
      • AB Inbev
        • Shock Top
        • Colorado Native
        • Redhook
      • MillerCoors produces several craft beers
        • Blue Moon
        • Henry Weinhard
        • Leinenkugel
    • 33. Assumptions   Revenue Growth Rate 14% Recalls 0 COGS % of Revenue 42% SG&A 8% Income Tax 44% Excise Taxes -7.0% Advertisement Expense 28% Perpetuity Growth 3.5% β 0.80 Risk Premium 6% 30-Year Bond Rate 4.00% Discount Rate 8.80%
    • 34. Income Statement 2005-2014 Source: Global Business Browser / Reuters Year Ending (December)(in Millions) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Gross Revenue 263.3 315.3 380.6 449.6 453.4 516.9 589.2 671.7 765.8 873.0 Sales Returns and Allowances 0.0 0.0 0.0 -13.2 0.0 0.0 0.0 0.0 0.0 0.0 Excise Tax Receipts -25.0 -29.8 -38.9 -37.9 -38.4 -36.2 -41.2 -47.0 -53.6 -61.1 Revenue 238.3 285.4 341.6 398.4 415.1 480.7 548.0 624.7 712.2 811.9 Total Revenue 238.3 285.4 341.6 398.4 415.1 480.7 548.0 624.7 712.2 811.9 Cost of Revenue 96.8 121.2 152.3 214.5 201.2 217.1 247.5 282.1 321.6 366.7 Cost of Revenue, Total 96.8 121.2 152.3 214.5 201.2 217.1 247.5 282.1 321.6 366.7 Gross Profit 141.5 164.3 189.4 183.9 213.8 263.6 300.5 342.6 390.5 445.2 Selling/General/Administrative Expense 17.3 22.7 24.6 35.0 36.9 41.4 47.1 53.7 61.3 69.8 Advertising Expense 100.9 113.7 124.5 132.9 121.6 144.7 165.0 188.1 214.4 244.4 Total Selling/General/Administrative Expenses 118.2 136.3 149.0 167.9 158.5 186.1 212.1 241.8 275.7 314.3 Impairment-Assets Held for Use 0.0 0.0 3.4 1.9 1.0 0.0 0.0 0.0 0.0 0.0 Unusual Expense (Income) 0.0 0.0 3.4 1.9 1.0 0.0 0.0 0.0 0.0 0.0 Total Operating Expense +COGS 215.0 257.5 304.8 384.3 360.8 403.2 459.6 524.0 597.3 680.9 Operating Income 23.3 28.0 36.9 14.1 54.3 77.5 88.4 100.8 114.9 130.9 Interest Income - Non-Operating 1.8 3.1 4.3 1.6 0.1 2.5 2.8 3.2 3.7 4.2 Interest/Investment Income - Non-Operating 1.8 3.1 4.3 1.6 0.1 2.5 2.8 3.2 3.7 4.2 Interest Income (Expense) - Net Non-Operating Total 1.8 3.1 4.3 1.6 0.1 2.5 2.8 3.2 3.7 4.2 Other Non-Operating Income (Expense) 0.4 0.7 0.5 0.2 0.0 0.4 0.5 0.5 0.6 0.7 Other, Net 0.4 0.7 0.5 0.2 0.0 0.4 0.5 0.5 0.6 0.7 Income Before Tax 25.5 31.8 41.6 15.8 54.4 80.4 91.7 104.5 119.2 135.8 Total Income Tax 10.0 13.6 19.2 7.8 23.2 35.4 40.3 46.0 52.4 59.8 Net Income 15.6 18.2 22.5 8.1 31.1 45.0 51.3 58.5 66.7 76.1
    • 35. Balance Sheet 2005-2009 Source: Global Business Browser / Reuters 2005 2006 2007 2008 2009 Cash and Short Term Investments 63.9 82.4 95.5 9.1 55.5 Total Receivables, Net 9.5 17.8 20.1 31.1 22.6 Total Inventory 13.6 17 18.1 22.7 25.6 Other Current Assets, Total 2 3.4 4.3 6 9.4 Total Current Assets 89.2 120.6 137.9 68.9 113 Property/Plant/Equipment - Net 26.5 30.7 46.2 147.9 147 Other Long Term Assets, Total 3.4 3.2 13.9 3 2.9 Total Assets 119.1 154.5 198 219.8 262.9 Accounts Payable 11.4 17.9 17.7 20.2 25.3 Accrued Expenses 15.6 19.6 20.4 23.5 21.4 Notes Payable/Short Term Debt 0 0 0 0 0 Other Current liabilities, Total 3.4 6.6 44 46.7 54.2 Total Current Liabilities 28.7 40.9 60.2 67.1 73.8 Other Liabilities, Total 4.3 5 4.2 12.7 16 Total Liabilities 33.1 45.9 64.4 79.7 89.8 Common Stock 0.1 0.1 0.1 0.1 0.1 Additional Paid-In Capital 70.8 80.2 88.8 102.7 111.7 Retained Earnings (Accumulated Deficit) 15.6 28.5 44.9 37.7 61.7 Other Equity, Total -0.5 -0.2 -0.2 -0.4 -0.4 Total Equity 86 108.6 133.6 140 173.2 Total Liabilities & Shareholders’ Equity 119.1 154.5 198 219.8 262.9
    • 36. Key Employees Name Position Board C. James Koch Chairman Executive Martin F. Roper President & CEO Executive William F. Urich CFO & Treasurer Executive Thomas W. Lance VP, Operations Executive John C. Geist VP, Sales Executive David L. Grinnell VP, Brewing Executive David A. Burwick Class A Director Non-Executive Pearson C. Cummin, III Class A Director Non-Executive Charles Joseph Koch Class B Director Non-Executive Jay Margolis Class B Director Non Executive Gregg A. Tanner Class B Director Non-Executive Jean-Michel Valette Class A Director Non-Executive
    • 37. SWOT
      • Strengths
        • Strong recent financial performance
        • Robust network of breweries for local distribution
        • Diversified in products and geographical distribution
        • Strong market position
        • Expanding market share
        • Strong growth prospects
      • Weaknesses
        • Much smaller player than most competitors
        • Declining profitability
        • Limited liquidity position
        • Low return on equity
        • Product recalls
      • Opportunities
        • Focused strategy on reducing
        • Dependencies on other brewers
        • Production expansion
        • Growing craft beer market
      • Threats
        • Changing consumer preferences
        • Limitations on advertising
        • Stringent governmental regulations
        • Consolidation in beer industry
    • 38. Financial Ratios Source: Global Business Browser Boston Beer AB Inbev SABMiller Heineken Industry ROI 15.16% 7.95% 8.36% 9.26% 9.40% Current Ratio 1.53 0.76 0.65 0.78 1.87 Return on Assets 12.90% 5.20% 5.00% 5.60% 6.19% Gross Margin 47.10% 54.16% 52.73% 34.36% 44.62%
    • 39. Final Notes
      • A large amount of information in this presentation was taken from the Boston Beer Company 2009 10k
    • 40. Sensitivity Analysis