WSUV_CBA_Presentation
- 1. Attar B. – Darren C. – Shamal K. – Vlad P.
- 2. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion Craft Brew Alliance, Inc. (BREW) Sector Industry Consumer Staples Beverages: Beer Craft Brew Alliance 52 Week Price Range Share Price as of March 11 Beta Avg. Daily Volume Market Cap Enterprise Value Gross Profit Margin Operating Margin Return on Assets Return on Equity P/E Ratio EPS $10.07 - $17.89 $12.51 1.21 50,588 $248.3 Mil $268.4 Mil 29.35% 2.85% 1.72% 2.67% 83.38 $0.16 (NASDAQ) Sector Industry Consumer Staples Beverages: Beer
- 3. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion Recommendation: Buy Source: Yahoo Finance
- 4. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion Ownership Structure • Public Minority – 43% • Anhueser-Busch (BUD) – 32% • Widmer Brothers – 12% • Kona Founders – 10% • Management & Board Members – 3% Source: BREW
- 5. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion SWOT Analysis Strengths: - Large domestic market - Streamlined distribution network - Strong brand portfolio - Resources of BUD Weaknesses: - Too many taxes - Low Margins - Too much competition - Cash flow - Highly regulated industry Opportunities - Growing economy - New acquisitions - New products - Growing demand - Global reach of business Threats - Tax changes - Low cash flow - Product differentiation - More government regulation
- 6. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion Streamlined Distribution Source: BREW
- 7. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion $200 $235 $277 $325 $383 $450 $- $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 2014 2015 2016 2017 2018 2019 Thousands • Expected Sales growth of 17.6% based on 5 year historical growth • Expanding to capture new market share • Consumer Aggregate Growth Rate of 14% Revenue Growth
- 8. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion • Reduction of COGS of 23% • Gross margin of 35% in 2017 • Continued reduction in SG&A as BREW becomes more efficient • Growth of the bottom line1.49% 1.09% 1.54% 2.56% 3.84% 5.12% 5.97% 5.97% 3.03% 2.12% 2.85% 4.53% 6.65% 8.77% 10.18% 10.18% 29.55% 28.05% 29.35% 30.76% 32.88% 35.00% 36.42% 36.42% 66% 69% 66% 62% 57% 51% 47% 47% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 MARGIN GROWTH Net Margin Operating Margin Gross Margin Cost of Goods Sold Margins
- 9. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion $157.83 $185.00 $217.56 $255.85 $300.88 $353.84 $- $50.00 $100.00 $150.00 $200.00 $250.00 $300.00 $350.00 $400.00 2014 2015 2016 2017 2018 2019 Hundreds Net Investments • High growth companies often reinvest cash into the business • Maintained current Debt/EBITDA ratio Net Investments
- 10. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion $0.13 $0.10 $0.16 $0.32 $0.56 $0.87 $1.20 $1.41 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 Diluted Net Income (dollars per share) $(4) $3 $7 $12 $15 $11 $(5) $- $5 $10 $15 $20 2014 2015 2016 2017 2018 2019 Thousands Cash Flows
- 11. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion Debt Forecast • 2014 Debt/EBITDA: 1.04 • Debt/EBITDA should hold steady in the near term • BREW can grow their debt over the forecast period as a result $14.36 $19.99 $28.46 $39.39 $50.67 $58.45 $- $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 2014 2015 2016 2017 2018 2019 Thousands Debt Debt 1.04 1.06 1.04 1.03 1.02 1.02 0.07 0.09 0.11 0.13 0.14 0.14 0.00 0.20 0.40 0.60 0.80 1.00 1.20 2014 2015 2016 2017 2018 2019 DEBT RATIOS Debt/EBITDA Debt/Assets
- 12. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion CBA’s Free Cash Flows • Changes to debt add to rising free cash flows • Improving gross-margin and lowering operating costs will also increase free cash flows. • 17.6% revenue growth rate • As a percentage of revenue, net investments and depreciation held steady. 2014 2015 2016 2017 2018 2019 Forecasted Rev. Growth 17.60% 17.60% 17.60% 17.60% 17.60% Expected Growth Rate (Cap Ex./Dep.) 7.86% 7.86% 7.86% 7.86% 7.86% Op. Cost Margin 97% 95% 93% 91% 90% 90% Debt Changes $3000 $6270 $8473 $10,925 $11,281 $7778 Free Cash Flow ($4485) $2984 $6896 $11,868 $14,579 $11,254 (In Thousands)
- 13. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion The DCF Model Beta: 1.21 • 4-year monthly regression • S&P 500 and BREW returns CAPM: 12.4% • 4.4% risk-free rate • 11% market risk Cost of Debt • 0.96 % yield on long-term debt • Cost of debt 5% after adding risk-free rate WACC: 12% • Debt Weight: 5.83% • Equity Weight: 94.17% Target Price: $6.78 • Terminal Value: $96,809,000 • Post-supernormal growth rate: 5%
- 14. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion The DCF Model – Equity Approach • CBA investors are primarily equity stakeholders in an organization with a minimal debt ratio of about 6% • Terminal WACC substituted by new terminal cost of equity • The new cost of equity was based upon a beta of 1 • Computed mean average of both approaches Mean = $7.01
- 15. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion DCF Limitations • The DCF model tends to undervalue high-growth companies • Cause: The high growth period is realistically longer than five to ten years • DCF modeling tends to ignore acquisition prospects • Acquisition likely for small cap companies, especially in an industry undergoing consolidation
- 16. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion Other Valuation Metrics Valuation Metric Estimated Target Price Weights Total Price/Earnings $ 8.00 0.10 $ 0.80 Price/Book $23.31 0.10 $ 2.33 Price/Sales $30.37 0.10 $ 3.04 Discounted Cash Flows $ 7.01 0.25 $ 1.75 Closed Transactions $16.17 0.45 $ 7.28 Weighted Average Target Price $ 15.20
- 17. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion • What if consumers suddenly stopped buying craft beer Growth of Craft Beer • BREW can’t produce enough beer to maintain growth without expansion Source: BREW
- 18. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion What if Anheuser Busch stops distributing BREW Products? Source: BREW
- 19. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion • Sales are focused in the western region of the United States • BREW can’t react to changes in discretionary spending Sales Concentration Source: BREW
- 20. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion Conclusion Source: BREW
- 21. Questions?
- 22. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion Appendix Valuation Company name Price EPS P/E ratio Price/Book Price/Sales Mkt Cap D/E ROA ROE ROI BREW Craft Brew Alliance $ 13.09 0.16 42.23 2.14 1.33 249.68M 10.57 1.17% 1.79% 1.40% BUD Anheuser Busch InBEV $ 127.66 5.59 20.7 4.02 4.76 207.67B 97.54 12.50% 31.46% 15.81% SAM Boston Beer Co Inc. $ 259.51 7.11 28.34 7.84 3.86 3.46B 0.13 17.30% 24.58% 21.74% TAP Molson Coors Brew Co. $ 74.47 2.76 17.72 1.75 3.34 13.87B 40.52 3.50% 6.24% 4.13% HINKY Heineken N.V. (ADR) $ 33.01 1.65 20.05 3.3 2.14 37.97B 94.81 5.01% 12.73% 6.88% Average Multiple Estimated Target Price Weights Total Average Price/Earnings 25.81 0.61 $ 8.00 0.1 $ 0.80 Average Price/Book 3.81 1.78 $ 23.31 0.1 $ 2.33 Average Price/Sales 3.09 2.32 $ 30.37 0.1 $ 3.04 Discounted Cash Flows $ 7.01 0.25 $ 1.75 Closed Transactions $ 16.17 0.45 $ 7.28 WA Target Price $ 15.20
- 23. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion Appendix DCF Analysis (in thousands) Expected g (Supernormal Growth) 17.6%LT Revenue Growth r (Common Cost of Equity) 12.37%CAPM Debt Ratio 5.83%Debt to Equity Ratio Est. Tax Rate 39.65% Tax Rate for 2014 r(cost of debt) 5.00% Long term historical Cost of Debt plus premium WACC 11.94% Forecast Period 2014 2015 2016 2017 2018 2019 Free Cash Flow $ (4,485) $ 2,984 $ 6,896 $ 11,868 $ 14,579 $ 11,254 Post-Supernormal Growth Rate 5.00%TTM GDP Terminal Value $ 96,809 Perpetual Growth Value of CBA Operations $ 129,123.81 NPVCF+Termin al Intrinsic Value of CBA Equity $ 129,124 Common Shares Outstanding 19,038 2014 10K Target Price $ 6.78 4.4% 11.0% Fama and French "The Equity Premium" 1872- 2000 1.21Regression of Return SPX vs. BREW 12.4%
- 24. Overview Competitive Positioning Financial Summary Valuation Risks Conclusion AppendixCONSOLIDATEDBALANCE SHEETS (USD $) Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2018 Dec. 31, 2019 In Thousands, unless otherwise specified Current assets: Cash and cash equivalents $ 2,726.00 $ 981.00 $ 3,965.24 $ 10,860.78 $ 22,728.92 $ 37,307.73 $ 48,561.53 Accounts receivable,net $ 11,370.00 $ 11,741.00 $ 12,906.99 $ 14,768.20 $ 17,503.09 $ 20,743.88 $ 23,502.53 Inventories $ 16,639.00 $ 18,971.00 $ 20,855.00 $ 23,862.33 $ 28,281.33 $ 33,517.78 $ 37,975.18 Deferred income tax asset, net $ 1,345.00 $ 1,670.00 $ 1,835.85 $ 2,100.58 $ 2,489.58 $ 2,950.54 $ 3,342.92 Other current assets $ 3,403.00 $ 4,413.00 $ 4,851.25 $ 5,550.81 $ 6,578.75 $ 7,796.84 $ 8,833.72 Total current assets $ 35,483.00 $ 37,776.00 $ 44,414.34 $ 57,142.70 $ 77,581.67 $ 102,316.77 $ 122,215.88 Property, equipmentand leasehold improvements, net $ 104,193.00 $ 110,350.00 $ 118,695.61 $ 127,672.38 $ 137,328.05 $ 147,713.97 $ 158,885.36 Goodwill $ 12,917.00 $ 12,917.00 $ 12,917.00 $ 12,917.00 $ 12,917.00 $ 12,917.00 $ 12,917.00 Intangibleand other assets, net $ 17,693.00 $ 17,558.00 $ 17,424.03 $ 17,291.08 $ 17,159.15 $ 17,028.22 $ 16,898.29 Total assets $ 205,769.00 $ 216,377.00 $ 237,865.32 $ 272,165.87 $ 322,567.55 $ 382,292.74 $ 433,132.42 Current liabilities: Accounts payable $ 14,742.00 $ 12,987.00 $ 14,276.73 $ 16,335.46 $ 19,360.58 $ 22,945.30 $ 25,996.71 Accrued salaries, wages and payroll taxes $ 4,616.00 $ 5,114.00 $ 5,621.87 $ 6,432.55 $ 7,623.78 $ 9,035.36 $ 10,236.94 Refundable deposits $ 8,252.00 $ 8,152.00 $ 8,961.57 $ 10,253.84 $ 12,152.73 $ 14,402.87 $ 16,318.26 Other accrued expenses $ 1,381.00 $ 2,316.00 $ 2,546.00 $ 2,913.14 $ 3,452.61 $ 4,091.89 $ 4,636.05 Current portion of long-term debt and capital lease obligations $ 710.00 $ 1,157.00 $ 1,157.00 $ 1,157.00 $ 1,157.00 $ 1,157.00 $ 1,157.00 Total current liabilities $ 29,701.00 $ 29,726.00 $ 32,563.18 $ 37,092.00 $ 43,746.70 $ 51,632.43 $ 58,344.96 Long-term debt and capital lease obligations, net of current portion $ 11,050.00 $ 13,720.00 $ 19,990.04 $ 28,463.11 $ 39,387.89 $ 50,669.11 $ 58,447.21 Fair value of derivative financialinstruments $ - $ 503.00 $ 1,893.62 $ 2,166.68 $ 2,567.92 $ 3,043.39 $ 3,448.11 Deferred income tax liability, net $ 17,719.00 $ 18,570.00 $ 20,414.18 $ 23,357.94 $ 27,683.53 $ 32,809.29 $ 37,172.48 Other liabilities $ 584.00 $ 665.00 $ 731.04 $ 836.46 $ 991.36 $ 1,174.92 $ 1,331.16 Total liabilities $ 59,054.00 $ 63,184.00 $ 75,592.06 $ 91,916.18 $ 114,377.40 $ 139,329.13 $ 158,743.92 Commitments and contingencies (Note 16) Common shareholders' equity: Common stock, $0.005 par value. Authorized 50,000,000 shares; issued and outstanding 19,115,396 and 18,972,247 $ 95.00 $ 96.00 $ 97.01 $ 98.03 $ 99.06 $ 100.11 $ 101.16 Additional paid-in capital $ 136,972.00 $ 138,391.00 $ 139,824.70 $ 141,273.25 $ 142,736.81 $ 144,215.54 $ 145,709.58 Accumulatedother comprehensive loss $ - $ (312.00) $ (312.00) $ (312.00) $ (312.00) $ (312.00) $ (312.00) Accumulateddeficit $ (25,835.00) $ (22,758.00) $ (22,758.00) $ (22,758.00) $ (22,758.00) $ (22,758.00) $ (22,758.00) Total common shareholders' equity $ 111,232.00 $ 115,417.00 $ 116,851.71 $ 118,301.29 $ 119,765.88 $ 121,245.64 $ 122,740.74 Total liabilities and common shareholders' equity $ 205,769.00 $ 216,377.00 $ 237,865.32 $ 272,165.87 $ 322,567.55 $ 382,292.74 $ 433,132.42 EBITDA $ 3,800.00 $ 14,358.00 $ 19,990.04 $ 28,463.11 $ 39,387.89 $ 50,669.11 $ 58,447.21 Debt/EBITDA 3.09 1.04 1.06 1.04 1.03 1.02 1.02 7% 9% 11% 13% 14% 14%