Huaneng

Per capita beer consumption of Peru assumed to triple over 10 year time and matching global standards of 72 litres by terminal year.

Income elasticity (0.498) incorporated into model as a lever of GDP Growth ( proxy for beer growth potential)
This is multiplied with assumed increase of 3x in per capita beer intake to arrive at a macro economic proxy of 7.49%
We subtract the given value with CPI Index ( inflation metric) factoring in assumed 5% price growth in beer * Negetive Price Elasticity( -1.676) arriving at net macro economic proxy= 6.89%

CASH FLOW GROWTH RATE-II
Cash flow growth taken as function of both fast growing macro economic factors + company specific performance

Company Specific Growth Rate
Historic EBITDA growth rate given in case =52.4% ( 50.4 mn USD(02) 31.69 mn USD(01) The rate is normalized and reduced gradually with power of 5% decrease to arrive at terminal value growth rate of 2.39%

( To account for rising estimated competition locally and South American Brewery industry and unfavourable govt policy)
Terminal Value Growth Rate = Function of long term Peru growth rate* Industry Beta Cash flow growth rate arrived for first 10 years
6.89%( Macro-economic proxy)+ 21.6% ( Company specific revenue growth) The arrived growth rate is accounted for a inflation of 2.5% assumed. Final cash flow growth rate used in DCF Model= 25.5%

DISCOUNTED CASH FLOW MODEL
( All figures in USD Mln)

QUESTION 1(b)
Can you think of an alternative way to value Backus based on the information of the case?
Explain how you would do it, what the value would be and how it would differ from the DCF results.

RELATIVE VALUATION -I
( Data Source-Exhibit 16)- All figures in USD Mln
Approach-1 > Price/Sales Method
•

First we get the comparable south
American targets and compute the
average P/Sales multiple. ( 2.12)

•

We multiply average P/S multiple
with Company Sales (137.19) to
arrive at market determined Firm
Value ( 290.82 USD Mln)

•

Dividing by number of open class A
shares(87.2 mln), we finally arrive
at a Share price of 3.35 USD

RELATIVE VALUATION-II
( Data Source-Exhibit 16) All figures in USD Mln
Approach-2 > EV/EBITDA Method
• First we get the comparable south
American targets and compute the
average EV/Ebitda multiple. ( 11.8)
•

We multiply average EV/EBITDA
multiple with Company EBITDA
(50.47) to arrive at market
determined Firm Value ( 596.81
USD Mln)

•

Dividing by number of open class A
shares(87.2 mln), we finally arrive
at a Share price of 6.84 USD

RELATIVE VALUATION- A RECAP


We find our classic RV approach using (EV/EBITDA) & (P/S) Method returning a firm value less than that of DCF Method.
FIRM VALUE