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Beverages – Soft Drinks Industry Modules 12 & 13: Firm Specific Valuation

Beverages – Soft Drinks Industry Modules 12 & 13: Firm Specific Valuation. Megan Morava. Background. World’s largest beverage company License and market 500 nonalcoholic beverage brands Primarily sparkling beverages Coca-Cola, Diet Coke, Fanta , Sprite Market, manufacture, and sell:

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Beverages – Soft Drinks Industry Modules 12 & 13: Firm Specific Valuation

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  1. Beverages – Soft Drinks Industry Modules 12 & 13: Firm Specific Valuation Megan Morava

  2. Background • World’s largest beverage company • License and market 500 nonalcoholic beverage brands • Primarily sparkling beverages • Coca-Cola, Diet Coke, Fanta, Sprite • Market, manufacture, and sell: • Beverage concentrates and syrups • Finished sparkling and still beverages • Revenues in 2013: $48 billion, 2.42% decrease • Acquired CCE’s North American operations in 2010

  3. Industry • Global soft-drink volume declined for the first time in 15 years • Sales volumes in developed nations are hurting growth • Double digit decline in Great Britain • North American concentration sales down • Health concerns about artificial sweeteners have caused sharp falloff in diet soda volumes • Rise of energy drinks putting pressure on soda sales • CEO plans to increase marketing budget to facilitate growth

  4. Overview • Adjusted balance sheet and income statement to include additional information • Operating Leases • Share-based compensation • Reformulated balance sheet and income statement to compute NEA, NFL, EATO, FEAT • Forecasted revenues via forecasts of sales growth rates • Forecasted EPAT via forecasts of EPM • Forecasted NEA via forecasts of EATO • Valuation using full-information forecasts • Comparison of value estimate to market price, Buy/Sell recommendation

  5. Adjusted Financial Statements

  6. Adjusted Balance Sheet

  7. Adjusted Income Statement

  8. Reformulation

  9. Computation of NEA

  10. Computation of NFL

  11. Computation of EPAT

  12. Full-information Forecasting

  13. Full-Information Forecast Assumptions • Forecasted sales growth rates • Forecasted EPM by combining components of EPM • Calculated each I/S line item from enterprise operations as a percentage of sales • EPM is total of all line items for each year • Forecasted EATO by combining components of EATO • Calculated each B/S line item from enterprise operations as a percentage of sales • Sum of all line items for each year is inverse of EATO • Calculated implied enterprise asset turnover

  14. Full-Information Forecast Assumptions • Original forecast assumptions

  15. Valuation

  16. WACC rEnt = [1.12% x(10,931/192,778)] + [8.65% x(181,847/192,778)] rEnt= 8.22%

  17. DCF

  18. REI

  19. AGR Original valuation: $145,441

  20. Adjustments and Sensitivity Analysis

  21. Buy/Sell Recommendation • Over-valued by $69.7 billion • Primarilydriven by sales growth rate assumptions • Argument could be made to hold the stock due to reputation and stability of the company • Uncertaintyabout the future of the carbonated beverages segment indicates sell • Conclusion -> Sell

  22. Questions?

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