Brewing” Into New Segments Recommendation: BUY Vs Previous Recommendation
Total Page：16
File Type：pdf, Size：1020Kb
MASTER IN FINANCE “HEINEKEN N.V.” COMPANY REPORT “ALCOHOLIC BEVERAGES” JANNUARY 2019 [email protected] STUDENTS: “CAROLINA MASSA & LUÍSA GASPAR” [email protected] "Brewing” into new segments Recommendation: BUY Vs Previous Recommendation - Adapting to changing consumer preferences Price Target FY17: 97.52 € Vs Previous Price Target - . Healthy lifestyles and moderate drinking are boosting the Price (as of 31-Dec-18) 77.20 € growth of low- and non-alcoholic beers and the expansion of the cider/perry market (consumption increased 19.2% in past 5 years). Reuters: HEIN.AS, Bloomberg: HEIA:NA Furthermore, increase in disposable income is making consumers 52-week range (€) 86.93-77.20 more willing to buy premium beverages (premium and super Market Cap (€m) 43 979.5782 Outstanding Shares (m) 569.684 premium beer grew 3.1% and 5.0%, annually, since 2000). Heineken is including non-alcoholic beverages in its Source: Bloomberg, Analyst estimates offerings (launch Radler 2.0%; Radler 0.0%; and Heineken 0.0) and enhancing the higher brackets of its portfolio. Currently, it is the biggest cider producer worldwide (market share of 18.7%) and the largest international premium beer in the world (premium volume increased 17.6%, in past 3 years, representing, in 2017, 14.3% of total volume). Heineken’s performance also relies on M&A deals. In Source: Bloomberg, Analyst estimates August 2018, it acquired a 40% stake on China Resources Beer Enterprise, which holds a position of 16.6% on the biggest beer (Values in € millions) 2017 2018E 2019F market, Asia Pacific (beer consumption, in 2017, amounted to Revenues 21 888 23 422 23 675 EBITDA 4 939 5 311 5 422 717.3 million hectolitres). Furthermore, Asia Pacific expects to EBITDA margin 22.6% 22.7% 22.9% record a CAGR [2018 – 2031] on cider consumption of 4.8%. Net Profit 2 153 2 284 2 382 . Heineken’s coverage is initiated with a BUY Net Profit margin 9.8% 9.8% 10.1% recommendation, given a 28.2% upside potential (capital gains NOPLAT 2 443 2 519 2 601 NOPLAT growth 20.5% 3.1% 3.3% of 26.3% and dividend yield of 1.9%). Heineken’s fair value, at ROIC 8.4% 8.1% 8.2% 2019F, resulted from a DCF valuation, using a WACC of 4.57%. EPS 3.78 4.01 4.18 DPS 1.79 1.46 1.52 Source: Company information, Analyst estimates Company description Heineken N.V. is a European-based global brewer. Currently, the company holds more than 250 brands in its beverage portfolio, which are sold in more than 190 countries, and operates 167 breweries, malteries and cider plants in more than 70 countries. Heineken is the #1 brewer in Europe and the #2 in the world. THIS REPORT WAS PREPARED EXCLUSIVELY FOR ACADEMIC PURPOSES BY CAROLINA MASSA AND LUÍSA GASPAR, MASTER IN FINANCE STUDENTS OF THE NOVA SCHOOL OF BUSINESS AND ECONOMICS. THE REPORT WAS SUPERVISED BY A NOVA SBE FACULTY MEMBER, ACTING IN A MERE ACADEMIC CAPACITY, WHO REVIEWED THE VALUATION METHODOLOGY AND THE FINANCIAL MODEL. (PLEASE REFER TO THE DISCLOSURES AND DISCLAIMERS AT END OF THE DOCUMENT) Page 1/42 “HEINEKEN N.V.” COMPANY REPORT Table of Contents COMPANY OVERVIEW ........................................................................... 3 COMPANY DESCRIPTION ...................................................................................... 3 PERFORMANCE ANALYSIS .................................................................................... 4 SHAREHOLDER STRUCTURE ................................................................................. 5 INDUSTRY OVERVIEW ........................................................................... 6 EUROPE ................................................................................................................ 6 . Market overview ........................................................................... 7 . Competitive environment ............................................................ 8 . Heineken ....................................................................................... 8 AMERICAS ............................................................................................................. 9 . Market overview ........................................................................... 9 . Competitive environment .......................................................... 10 . Heineken ..................................................................................... 11 AFRICA, MIDDLE EAST & EASTERN EUROPE ..................................................... 12 . Market overview ......................................................................... 13 . Competitive environment .......................................................... 13 . Heineken ..................................................................................... 14 ASIA PACIFIC....................................................................................................... 15 . Market overview ......................................................................... 15 . Competitive environment .......................................................... 16 . Heineken ..................................................................................... 17 INDUSTRY TRENDS AND VALUE DRIVERS .........................................18 PREFERENCES SHIFTING .................................................................................... 18 MARKET PREMIUMTIZATION ................................................................................ 19 CROSS-POLLINATION INITIATIVES ....................................................................... 19 LEGALIZATION OF CANNABIS ............................................................................... 20 MACROECONOMIC DRIVERS ............................................................................... 20 STRATEGIC PARTNERSHIPS – MARKETING ......................................................... 21 FORECAST .............................................................................................23 REVENUES .......................................................................................................... 23 OPERATING COSTS ............................................................................................. 25 CAPEX & NWC ................................................................................................. 25 VALUATION ............................................................................................26 ENTERPRISE VALUE ............................................................................................ 26 . Discount rates ............................................................................. 26 . Sensitivity Analysis .................................................................... 27 . Scenario Analysis ....................................................................... 28 MULTIPLES VALUATION....................................................................................... 28 APPENDIX ..............................................................................................29 REPORT RECOMMENDATIONS ........................................................................... 31 CLIMATES CHANGES THREAT BARLEY PRODUCTION, IMPACTING BEER MARKET . 33 CANNABIS MARKET EXPANSION – THREAT OR OPPORTUNITY FOR BREWERS? .... 38 PAGE 2/42 “HEINEKEN N.V.” COMPANY REPORT Company Overview Company Description Heineken is the #1 brewer in The Heineken N.V. Company was established in 1864 by the Heineken family, Europe and #2 in the World. growing in the past 150 years from a single brewery in Amsterdam to one of the HEINEKEN BRAND PORTFOLIO FLAGSHIP BRAND Heineken® world’s most international breweries. The company is engaged in the production Amstel Desperados Sol and sale of alcoholic beverages, namely, beer and cider. Currently, it holds more INTERNATIONAL Tiger BRANDS Tecade BEER Red Stripe than 250 brands in its beverage portfolio, which are sold in more than 190 Krusovice Birra Moretti Affligem countries, and operates 167 breweries, malteries and cider plants in more than CRAFT & VARIETY Lagunitas FLAGSHIP BRAND Strongbow Apple Ciders 70 countries. Heineken is the number 1 brewer in Europe and the number 2 in Orchard Thieves Stassen CIDER CIDER BRANDS Bulmers the World, behind Anheuser-Busch InBev, following the acquisition of SAB Miller Old Mount Blind Pig Fig.1- Heineken’s brand portfolio by A-B InBev, in 2016. In 2017, Heineken sold 247.3 million hectolitres of beer Source: Company website and 4.3 million hectolitres of cider and reached € 22 529 million in revenues. In addition to its flagship brand, Heineken®, the company has other international beer brands, which includes low- and non- alcoholic beers, Craft and Specialty beers, Flavoured Beers and Cider Brands. The brands with more weight on revenues are the global brands - Heineken®, Amstel, Desperados and Sol; Craft and Specialty Beers- Affligem Abbey Beer; and Cider- Strongbow. Its diverse and wide brand portfolio allows Heineken to be well positioned in all segments of the market: premium, mainstream and economy. The company is the largest Fig.2- Heineken’s revenues by region international premium beer in the world (in 2017, 14.3% of volume sold/ 36.0 Source: Company report million hectolitres was in the premium segment) and continues to expand its craft portfolio (acquisition of US-based Lagunitas). Furthermore, Heineken has been exploring opportunities resulting from a growing number of consumers worldwide appealing towards low- and non-alcoholic beers such as Radler (in 2015, Radler 2.0% and Radler 0.0% offers were expanded across