capital investments valuation project (1)
TRANSCRIPT
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Analyst Disclaimer:
All recommendations, opinions, and presentations of financial data within this report is
based off the research of Kevin Schmeits, Logan Swartz, and William Haass. Although the
analysts have thoroughly and meticulously applied their knowledge to the report, they do not
hold any certifications within the financial services industry and therefore have little credibility. It
should also be noted that the analyst have no relation to AB InBev or its affiliates.
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Table of Contents
Topic Page #
Company and Industry
Executive Summary 10
Business Description 11
Company History
Origins & Acquisitions 12
Lawsuits 13
New Products & Innovation 13
Events Impacting Firm Value 14
SAB Miller Acquisition 14
Products & Competition
Major Products 15
Competitors 19
Competition 20
Market Cap V Competitors 21
Corporate Control
Management 22
Executive Compensation 29
Board of Directors 32
Institutional Share Ownership 34
Looking Forward
Sales & Earnings Estimates 36
Analyst Recommendations 38
Forecasting 39
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Topic Page #
Historical Financial Analysis Executive Summary 42
Stock Price Performance
Price V. Competitors 43
Absolute Performance 44
Financial Performance
Growth Performance 45
Financial Performance Metrics 48
DuPont Analysis 50
Altman Z-Score Analysis 53
4
Topic Page #
Capital Structure Analysis
Executive Summary 56
Cost of Debt & Equity 57
Capital Stack 59
Debt Ratios 60
Beta Calculations 61
Distribution to Shareholders 62
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Topic Page #
Financial Statement Forecasts
Executive Summary 65
Pro Forma Parameters and Assumptions 66
Projected Fade Rate Graph Analysis 67
Historical and Pro Forma Ratios
Efficiency Ratios 75
Leverage Ratios 77
Coverage Ratios 78
Profitability Ratios 79
Pro Forma DuPont Analysis 80
Pro Forma Altman Z-Score 80
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Topic Page #
Cash Flow Valuation
Executive Summary of Cash Flow Valuation 83
Entity Value 84
Alternative Present Value (APV) 85
Modified Free Cash Flow to Equity (FCFE) 87
Analysis of Cash Flow Valuation 90
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Topic Page #
Multiples Valuation Analysis
Executive Summary of Multiples Valuation Analysis 93
Relative Multiples Valuation Analysis 94
Relative Multiples Analysis vs. Comparable Companies 95
Relative Multiples Analysis vs. Comparable Index’s 96
AB InBev Intrinsic Price Calculations 96
In-depth Multiples Analysis 97
Market & Industry Multiple Analysis 100
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Topic Page #
Valuation Summary & Conclusion
Introduction to Summary 103
Cash Flow Methods 103
Summary & Analysis of Cash Flow Valuation 104
Summary of Multiple Analysis 105
Final Conclusion 106
Additional Sections
Appendix & Excel Sheets 108
Bibliography 117
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Company & Industry
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Table of Contents
Company and Industry
Topic Page #
Executive Summary 10
Business Description 11
Company History
Origins & Acquisitions 12
Lawsuits 13
New Products & Innovation 13
Events Impacting Firm Value 14
SAB Miller Acquisition 14
Products & Competition
Major Products 15
Competitors 19
Competition 20
Market Cap V Competitors 21
Corporate Control
Management 22
Executive Compensation 29
Board of Directors 32
Institutional Share Ownership 34
Looking Forward
Sales & Earnings Estimates 36
Analyst Recommendations 38
Forecasting 39
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AB InBev’s actual EPS has underperformed against the estimated EPS in 4 out of the last 5 quarters.
As a result of AB InBev consistently underperforming the EPS, industry experts predicted a significant decrease in the stock price. AB InBev surprised investors when it maintained optimism about the company and kept the stock price high.
Executive Summary of Company and Industry
AB InBev has 3 different brand categories; Global brands, International brands and Local brands. Each category consists of beers that has similar marketing and distribution strategies. AB InBev’s global market share based on volume is 20.8%. After the acquisition of SABMiller is finalized, AB InBev’s market share will be over 30% of the global beer market.
The market cap of AB InBev is $203.8 billion while Heineken, another leader in the world beer market, has a market cap of only $49.52 billion.
Analysts currently project that
earnings will improve in upcoming
years, despite falling short in 4 of
the last 5 quarters. AB InBev
plans to grow internally by
improving marketing, beating
market trends, and signing
contracts with major
organizations.
The acquisition of SABMiller is
part of the external growth
strategy.
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Business Description
Anheuser-Busch InBev (NYSE: BUD; Euronext: ABI; JSE: ANB; MEXBOL: ABI) is the
leading global brewer and one of the world’s top five consumer product companies.
Operating across 26 countries and employing more than 150,000 people, AB InBev
takes advantage of its size to strive for excellence and grow business year after year.
With an expansive portfolio consisting of over 200 beer brands, AB InBev oversees 19
“billion-dollar” brands, 7 of which are considered part of the top 10 most valuable beer
brands in the world. As a result of the aforementioned statistics, AB InBev is perfectly
aligned with their mission statement to be the “Best beer company bringing people
together for a better world.”
In AB InBev’s 2015 annual report to shareholders, the firm made it abundantly clear that
it intends to be an enduring company, spearheading the industry, for the next 100 years.
A strong indicator of the firm taking steps to stand the test of time was provided with the
delivery of strong organic growth in both top-line and EBITDA in 2015. With a 45%
share of US markets, AB InBev accounts for more sales than craft and imported beers
combined. In an effort to drive year-over-year growth, AB InBev conducts extensive
research to develop a better understanding of consumers’ needs and the occasions
when they enjoy beer and other alcohol beverages. With a brand portfolio as expansive
as AB InBev’s, the company organizes its beer brands into three categories; Global
brands, International brands, and Local Champion brands. The Global brands category
consists of AB InBev’s core brands Budweiser, Corona, and Stella Artois. A tier below
Global brands is the International brands, which focuses on Beck’s, Hoegaarden, and
Leffe. Finally, the Local Champion category consists of approximately 200 brands
boasting names like Michelob, Brahma, Skol, and Modelo.
Growing AB InBev’s global brands has involved leveraging the strength of core brands
Budweiser, Stella Artois, and Corona to form strong connections with consumers
worldwide. For example, Budweiser has sponsored a wide range of diverse events such
as Chinese New Year celebrations and the Made in America music festival. Although a
global brand, AB InBev identified the following regions as their top performing markets;
USA, Canada, Mexico, Brazil, Argentina, Belgium, Germany, UK, China, South Korea.
In these core markets, AB InBev identified sports as a major contributor to revenue and
partnered up with the NFL, NHL, NBA China, and amateur soccer leagues in Brazil and
UK. Despite AB InBev’s strong foundation in these markets, the firm still receives about
two-thirds of volume and over half of revenue and EBITDA from faster-growing
developing markets.
AB InBev drives sustainable growth and remains the leading global brewer due to their
ability to align their marketing, product development, sales and other brand-building
efforts with the main occasions for purchasing and consuming.
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Origins & Acquisitions
Anheuser-Busch InBev has roots in the brewing industry dating back more than 600
years at the Den Hoorn brewery in Leuven, Belgium. Once the firm helped pioneer the
Anheuser & Co brewery in St. Louis, Missouri in 1852, it solidified itself as a dominant
force in the industry. 164 years later and the brand is more prevalent than other. In
September 2016, AB InBev acquired competitor SABMiller for $107 billion. The
acquisition will expand AB InBev’s already prominent portfolio of complementary global
and local brands as well as strengthen their position in emerging regions with strong
growth prospects. AB InBev views the acquisition of SABMiller as an opportunity to
become the first true global brewer, a title that will create substantial growth
opportunities and create value to benefit all stakeholders.
Major acquisitions aside, AB InBev has been quietly acquiring smaller brands with
significant growth potential. Since 2011, AB InBev has acquired nine craft brewers and
most recently purchased Boathouse Beverage LLC, which marked AB InBev’s
expansion into carbonated-water alcohol industry. By acquiring Boathouse Beverage
LLC, AB InBev is positioning themselves to become a leader in flavored malt
beverages, a beverage category that increased sales 21% in 3 years.
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Lawsuits
When AB InBev was in the process of acquiring SABMiller, a lawsuit consisting of 23
plaintiffs occurred. Plaintiffs claimed the merger, which they considered a monopoly,
would result in loss or damage in the form of higher beer prices and lower quality beer.
When the Department of Justice approved the acquisition, the lawsuit lost all merit.
However, the Department of Justice did restrict AB InBev’s ability to sell beers such as
Miller Lite and Miller High Life in the US. AB InBev has also recently fought and lost
lawsuits that claimed the brand misleads drinkers into paying a premium for beer that
appears to be brewed in Europe, when in reality, the beer is brewed in St. Louis with
Missouri water. AB InBev’s Beck’s brand was the product disputed in the original case,
now the company is dealing with the same issue with their Leuven beer.
New Products & Innovation
With the rise of craft beer in the United States, AB InBev has taken several steps to
compete. Shock Top has received significant funding to satisfy the niche market, and in
2015 Shock Top’s Honeycrisp Apple Wheat and Chocolate Wheat hit shelves across
the US. In addition to Shock Top, AB InBev launched a second round of Project 12, a
competition where 12 U.S. brew-masters compete to create a new beer recipe inspired
by classic Budweiser quality but with a unique flavor profile. In China, AB InBev focused
its efforts on beer that complements specific cuisines. Harbin Cooling is a beer brewed
with essences of chrysanthemum and honeysuckle. The recipe allows the beer to be
paired with spicy foods and acts as a natural combatant to the heat of Chinese cuisine.
In addition to the Chinese addition of Harbin Cooling, AB InBev launched Budweiser
Supreme, a super-premium beer brewed for consumption in fine restaurants.
AB InBev has utilized its brands Budweiser and Bud Light Platinum to introduce
aluminum bottles. Aluminum bottles are the future packaging of beer for multiple
reasons. The bottles help beer get cold faster and stay colder longer, without sacrificing
the freshness or taste of the beer. Aluminum bottles also have the capability of twist-off
caps for opening convenience, as well as the ability to re-seal the beverage. As far as
features that benefit shareholders, aluminum is more cost-efficient to ship than glass.
Currently Budweiser and Bud Light Platinum are the only beers that offer aluminum
bottles, however AB InBev hopes to expand the packaging to a wide array of beers over
the next 5 years.
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Events Impacting Firm Value
In 2015, AB InBev paid $1.4 billion to ensure that Bud Light will remain the NFL’s official
beer until 2022. The landmark deal was an extension of AB InBev’s original contract
with the NFL that was made in 2011 and cost the firm $1.2 billion. Stakeholders viewed
AB InBev significant reinvestment of capital into the NFL as a sign that the firm was
confident the deal was highly profitable for both parties. For the 2016-2017 NFL season,
Bud Light partnered with 28 of the 32 NFL teams to create a custom can for each
team’s fans to enjoy.
SAB Miller Acquisition
In September of 2016, AB InBev finalized a deal to purchase SAB Miller for $108 billion.
The process of the acquisition has taken over a year to finalize. AB InBev made multiple
offers to acquire SAB Miller, however many were declined for various reasons. There
were also issues with the Department of Justice in the US and in China based on anti-
trust laws. AB InBev was forced to sell off some of the subsidiaries, including the Miller
brands to Molson Coors. SAB Miller was considered a major competitor of AB InBev in
the brewers’ industry. The combined company will produce around a third of the beer
around the world. As a result of this acquisition, determining the value of the firm has
many variables.
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Major Products
AB InBev is the largest brewing company in the world and has grown in a multitude of
ways. However, the firm is consistent with a strategy and it is proving to be successful.
AB InBev rigorously reinforces the ‘Focus Brand’ strategy. Focus Brands are those that
they invest most of their marketing money in and to which are dedicated the greatest
proportion of attention. With a portfolio of well over 200 brands, AB InBev prioritizes a
small group of brands with strong growth potential within each relevant consumer
segment. These Focus Brands, include what the company considers Global brands
(Budweiser, Corona and Stella Artois), International brands (Beck’s, Hoegaarden and
Leffe), and ‘local champions’ which are different in every region the world.
The “King of Beers”, Budweiser, was introduced by
Adolphus Busch in 1876 and is still brewed with the
same care and high-quality, exacting standards. What
began as an American original 139 years ago is a
global brand today, enjoyed by consumers in 85
countries. In accordance with its original recipe, this
great American lager is aged over beechwood chips
for 21 days which results in a perfectly balanced
flavor and a crisp, clean refreshing taste. Budweiser is
considered the world’s most valuable beer brand.
Corona is the leading beer brand in Mexico, the
6th most valuable beer brand in the world, and the
most popular Mexican beer worldwide, with sales in
more than 120 countries. Corona Extra was first
brewed in 1925 at the Cervecería Modelo in Mexico
City. Ten years after its launch, Corona became the
best-selling beer in Mexico, and today continues to
stand for Mexican pride around the world.
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Stella Artois has been called the most sophisticated
beer brand in the world. Based on a rich Belgian
brewing heritage of more than 600 years, this legacy
of quality and elegance is reflected in its iconic chalice
and exacting 9-step Pouring Ritual. Stella Artois is still
brewed using the finest natural ingredients in the
tradition of hand-crafted luxury. Today, Stella Artois is
the world’s 4th most valuable beer brand, sold
in more than 90 countries.
The world’s No. 1 German beer, Beck’s is renowned
for uncompromising quality by consumers in some 85
countries. Since 1873, the brand has been dedicated
to innovation and independent thought. True to its
original recipe, Beck’s has been brewed in the same
way using four key natural ingredients for more than
140 years. The hops used to brew Beck's today still
come from the Hallertau region, and every bottle of
Beck's is brewed according to the uncompromising
German Reinheitsgebot (Purity Law).
Making the extraordinary just perfect, Leffe is the beer
that enriches special moments. The flavorful and full
bodied character of the Leffe family of beers provides
a recipe for life’s best experiences. Made from only
the highest quality ingredients, Leffe's unique brewing
heritage is now shared and enjoyed by consumers in
more than 70 countries worldwide.
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A unique, authentic Belgian wheat beer with a
brewing tradition dating back to 1445, Hoegaarden is
totally different by nature. Hoegaarden has a unique
and extremely complex brewing process whereby the
beer is first top fermented and then is refermented
within the bottle, resulting in a distinctive cloudy-white
appearance and refreshing taste experience.
Consumers in over 70 countries in the world can
enjoy Hoegaarden’s refreshing nature.
AB InBev’s presence in North America is especially prevalent. In the US, they have
45.8% of the market share, the largest in the brewing industry. AB InBev’s local brands
in the US include Bass, Bud Light, Busch, Michelob and Natural Light. AB InBev
approaches Canada with a very similar makeup. In Canada, AB InBev has a market
share of 42.4% and are also the largest company in the brewing industry. Canada’s
local brands include Alexander Keith’s, Bass, Bud Light, Kokanee, Labatt, Lucky,
Lakeport and Oland. AB InBev’s market share in Mexico is an astronomical 58.2%. AB
InBev’s local brands consist of Barrilito, Estrella, Leon, Modelo, Montejo, Pacifico,
Tropical, and Victoria. In 2015, US and Canada beer sales combined to contribute
36.5% of AB InBev’s EBITDA while Mexico contributed 11.9%.
AB InBev also has a strong presence in Latin America. In Brazil, they not only sell beer,
but also soft drinks. AB InBev has a beer market share of 67.5% and a soft drink market
share of 19.2%. As a result, the firm is first in the beer industry and second in the soft
drink industry in regards to market share. AB InBev has different local brands in this
region including Antarctica, Bohemia, Brahm, Skol, Gaurana Antarctica and Pepsi. AB
InBev’s Argentinian operations have an even stronger market share in both industries.
In Argentina, AB InBev has a 76.7% market share in the beer industry and 19.9% in the
soft drink industry. Argentinian local brands include Andes, Brahma, Notre, Patagonia,
Quilmes, Pepsi, 7UP, and H2OH!. The Northern part of Latin America contributed
27.8% of AB InBev’s 2015 EBITDA and the Southern portion contributed 9.4%.
AB InBev’s strategy in Europe is different than that of other regions. AB InBev has a
specific strategy for each European country. For Belgium, the firm has a market share
of 55.5% and their local brands include Belle-Vue, Jupiler and Vieux Temps. AB InBev
is the largest brewing company in Belgium. The firm’s market share goes down to
17.7% in the UK. UK brands also include Bass, Boddingtons, Brahma, Whitbread, and
Mackeson. AB InBev’s market share drops even more in Germany. AB InBev reports a
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minimal 8.6% market share. Despite this, the firm is the second largest company in the
industry in terms of market cap with their different local brands. Europe contributed
6.4% to AB InBev’s 2015 EBITDA.
AB InBev also sells beer in China and South Korea. In China, they have a market share
of 18.6%, resulting in the firm having the 3rd largest market share in the industry.
Chinese local brands include Big Boss, Double Deer, Ginsber, Harbin, Jinling,
Jinlongquan, KK, Nancheng, Sedrin, and Shilang. In South Korea, AB InBev’s market
share is 57%. South Korean local beers are Cass, Cass Light, Cafri, The Premier OB,
and Aleston. 8.0% of AB InBev’s 2015 EBITDA came from the Asia Pacific sector’s beer
sales.
AB InBev operates on a global scale but as a result of selling beer all over the world,
expenses are significant. In 2015, Cost of Sales (CoS) increased 3.9% or 4.5% on a per
hectoliter basis. The increase was driven primarily by unfavorable foreign exchange
transactional impacts, higher depreciation from recent investments, and increase in the
company’s product mix. These increases were partly offset by procurement savings and
the synergies delivered in Mexico. On a constant geographic basis, cost of sales per
hectoliter increased by 5.2%. Total operating expenses increased 8.1% in 2015. Other
key data pertaining to expenses includes;
• Distribution expenses increased 8.3% in 2015, driven mainly by increased own
distribution in Brazil, which is more than offset by the increase in net revenues;
the growth of the company’s premium and near beer brands; and inflationary
increases in Latin America South.
• Sales and marketing expenses increased 9.4% in 2015 with increased support
behind the long term growth of the company’s brands, innovations and sales
activations.
• Administrative expenses increased by 8.3% mainly due to variable
compensation accruals.
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Competitors
After all of the mergers and acquisitions that have happened in the brewery industry,
only a few companies control a majority of the market share. The most well-known
brewing companies that people think of as independent are actually owned by just a few
major companies. Anheuser-Busch is by far the largest brewing company, especially
following their latest acquisition of SABMiller. AB InBev has almost 10 times the market
cap of Molson Coors and has about 100 times the market cap of Boston Beer Co.,
which are considered two major competitors in the brewery industry.
Global market share of the leading beer companies 2014, based on
volume sales
Anheuser-Busch InBev NV 20.8%
SABMiller Plc 9.7%
Heineken NV 9.1%
Carlsberg A/S 6.1%
China Resources Enterprise Ltd 6.0%
Tsingtao Brewery Co Ltd 4.7%
Molson Coors Brewing Co 3.2%
Beijing Yanjing Brewery Co Ltd 2.8%
Kirin Holdings Co Ltd 2.3%
Asahi Group Holdings Ltd 1.2%
Global market share of the leading beer companies 2014, based on volume sales data
Anheuser-Busch InBev NV
SABMiller Plc
Heineken NV
Carlsberg A/S
China Resources Enterprise Ltd
Tsingtao Brewery Co Ltd
Molson Coors Brewing Co
Beijing Yanjing Brewery Co Ltd
Kirin Holdings Co Ltd
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Competition
Companies within the brewing industry all compete in different ways. However, in the
US, 3 out of the top 5 domestic beers in 2015 were brewed by AB InBev. This
generated a significant amount of revenue because many people prefer the domestic,
lighter beers in the US.
Additionally, these brands compete in the market of premium domestic beers. AB InBev
also did very well in this category in 2015, producing 3 out of top 5 in the US. This is a
strong indicator that AB InBev has effectively operated in the US.
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Market Cap V. Competitors
AB InBev is also able to compete with other large companies in the beverage industry
outside of brewing companies. Coca-Cola has a beverage industry market cap of $186
Billion, Pepsi Co has a market cap of about $152 Billion, and Monster Beverage Co. has
a market cap of about $28 Billion. Despite focusing on alcoholic beverages, AB Inbev’s
market cap of approximately $200 Billion is significantly higher than any of the other
beverage companies.
Market Cap
Company (USD
Billions)
AB Inbev $201
Coca Cola Co $182.40
PepsiCo $149.70
Monster
Beverage
$28.10
Molson Coors $21.80
Boston Beer
Co.
$2.20
$0
$50
$100
$150
$200
$250
USD
(b
illio
ns)
Market Cap
Market Cap (USDBillions)
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Corporate Control: Management Qualifications and Ownership
Below is a list of AB InBev’s upper management.
Carlos Brito: CEO
Born in 1960 as a Brazilian citizen, and received his undergraduate
degree in mechanical Engineering from the Universidade Federal
do Rio de Janeiro and an MBA from Stanford University. He held
positions at Shell Oil and Daimler Benz prior to joining Ambev in
1989. Before being appointed Chief Executive Officer in January
2004 he held other roles within the company. He was appointed
Zone President North America at InBev in January 2005 and Chief
Executive Officer in December 2005. He is also a member of the
Board of Directors of Ambev and Grupo Modelo.
Sabine Chalmers: Chief Legal & Corporate Affairs Officer
As Chief Legal & Corporate Affairs Officer, and Secretary to the
Board of Directors. Ms. Chalmers holds many important roles in the
company. Born in 1965, Ms. Chalmers is a US citizen of German
and Indian origin and holds an LL.B. from the London School of
Economics. Ms. Chalmers joined in January 2005 after over 12
years with Diageo plc where she held a number of senior legal
positions in various geographies across Europe, the Americas and
Asia including as General Counsel of the Latin American and North
American businesses. Prior to Diageo, she was an associate at the
law firm of Lovells in London, specializing in mergers and
acquisitions. Ms. Chalmers is a member of the Board of Directors of
Grupo Modelo. She also serves on several professional councils
and not-for-profit boards, including the Association of Corporate
Counsel and Legal Momentum, the United States’ oldest legal
defense and education fund dedicated to advancing the rights of
women and girls.
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Felipe Dutra: CFO & Chief Technology Officer
Born in 1965, Mr. Dutra is a Brazilian citizen and holds a Degree in
Economics from Candido Mendes, and an MBA in Controlling from
Universidade de São Paulo. He joined Ambev in 1990 from Aracruz
Celulose, a major Brazilian manufacturer of pulp and paper. At
Ambev he held various positions in Treasury and Finance before
being appointed General Manager of one of the beverage
subsidiaries. Mr. Dutra was appointed Ambev’s Chief Financial
Officer in 1999 and he became the Chief Financial Officer in
January 2005. In 2014, Mr. Dutra became the Chief Financial &
Technology Officer. He is also a member of the Board of Directors
of Ambev and Grupo Modelo.
Claudio Garcia: Chief People Officer
Born in 1968, he is a Brazilian citizen and holds a Degree in
Economics from the Universidade Estadual do Rio de Janeiro. Mr.
Garcia joined Ambev as a Management Trainee in 1991 and
thereafter held various positions in Finance and Operations before
being appointed Information Technology and Shared Services
Director in 2002. Mr. Garcia was appointed InBev’s Chief
Information and Services Officer in January 2005 and its Chief
People and Technology Officer in September 2006. To ensure a
greater focus on building the best people pipeline globally, Mr.
Garcia was appointed Chief People Officer in 2014 focusing on the
company’s People organization globally. This includes the Global
Management Trainee Program, Global MBA recruitment, Executive
education and training and engagement initiatives.
Tony Milikin: Chief Procurement Officer
Born in 1961, Tony is a U.S. citizen and holds an undergraduate
Finance Degree from the University of Florida and an MBA in
Marketing from Texas University in Fort Worth, Texas. Mr. Milikin
joined the company in May 2009 from MeadWestvaco, where he
was Vice President, Supply Chain and Chief Purchasing Officer,
based in Richmond, Virginia, since 2004. Prior to joining
MeadWestvaco, he held various purchasing and supply chain
positions with increasing responsibilities at Monsanto.
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Luiz Fernando Edmond: Chief Sales Officer
Born in 1966, he is a Brazilian citizen and holds a Degree in
Production Engineering from the Federal University of Rio de
Janeiro. Mr. Edmond joined Brahma, which later became Ambev, in
1990 as part of its first Management Trainee Program. At Ambev,
he held various positions in the commercial, supply and distribution
areas. He was appointed Zone President Latin America North and
Ambev’s Chief Executive Officer in January 2005 and then Zone
President North America and Chief Executive Officer of Anheuser-
Busch in November 2008. He also is a member of the Board of
Directors of Ambev; is Vice Chair of the Beer Institute, a national
association of the brewing industry; and a member of Civic
Progress, an organization of St. Louis leaders working to improve
community and business life in the region.
Claudio Braz Ferro: Chief Supply Integration Officer
Born in 1955, Mr. Ferro is a Brazilian citizen and holds a Degree in
Industrial Chemistry from the Universidade Federal de Santa Maria,
RS, and has studied Brewing Science at the Catholic University of
Leuven. Mr. Ferro joined Ambev in 1977, where he held several
key positions, including plant manager of the Skol brewery,
Industrial Director of Brahma operations in Brazil and later VP
Operations at Ambev in Latin America. Mr. Ferro also played a key
role in structuring the supply organization when Brahma and
Antarctica combined to form AmBev in 2000. He was appointed the
Chief Supply Officer in January 2007 and then the Chief Supply
Integration Officer in March 2016.
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Miguel Patricio: CMO
Born in 1966, Miguel is a Portuguese citizen and holds a Degree in
Business Administration from Fundação Getulio Vargas in São
Paulo. Prior to joining Ambev in 1998, Mr. Patricio held several
senior positions across the Americas at Philip Morris, the Coca-
Cola Company and Johnson & Johnson. At Ambev, he was Vice
President Marketing, before being appointed Vice President
Marketing for InBev’s North American Zone based in Toronto in
January 2005. In January 2006 he was promoted to Zone President
North America, and in January 2008, he moved to Shanghai to take
on the role of Zone President Asia Pacific. He became the Chief
Marketing Officer in July 2012.
Pedro Earp: Chief Disruptive Growth Officer
Born in Petropolis, Pedro is a Brazilian citizen and holds a Bachelor
of Science degree in Financial Economics from the London School
of Economics. Mr. Earp joined in 2000 as a Global Management
Trainee in the Latin America North Zone. In 2002, he became
responsible for the Zone’s M&A team and in 2005 he moved to
Leuven, Belgium to become Global Director, M&A. Later, he was
appointed VP, Strategic Planning in Canada in 2006; Global VP,
Insights and Innovation in 2007; Global VP, M&A in 2009 and VP,
Marketing for the Latin America North Zone in 2013. He was
appointed Chief Disruptive Growth Officer in February 2015.
David Almeida: Chief Integration Officer
Born in 1976, David is a dual citizen of the USA and Brazil and
holds a Bachelor’s Degree in Economics from the University of
Pennsylvania. Most recently, he served as Vice President, US
Sales, a role he took on in 2011, having previously held the position
of Vice President, Finance for the North American organization.
Prior to that, he served as InBev's head of mergers and
acquisitions, where he led the combination with Anheuser-Busch in
2008 and the subsequent USA integration activities. Before joining
InBev in 1998, he worked at Salomon Brothers in New York as a
financial analyst in the Investment Banking division.
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Marcio Froes: Zone President of Latin America South
Born in 1968, he is a Brazilian citizen and received a Degree in
Chemical Engineering from the Universidade Federal do Rio de
Janeiro and a Masters Degree in Brewing from the University of
Madrid, Spain, in Industrial Technology. He joined Ambev in 1993
as a Management Trainee and has held roles in Supply, People
and Sales, before being appointed Vice President People for the
Canadian business in 2006. In Canada, he also served as Vice
President Supply and Sales prior to being appointed Business Unit
President from 2008 to 2009. Most recently, he was Vice President
Supply in Latin America North and was appointed Zone President
Latin America South in January 2014.
Bernardo Pinto Paiva: Zone President of Latin America North and Ambev’s CEO
Born in 1968, he is a Brazilian citizen and holds a Degree in
Engineering from Universidade Federal do Rio de Janeiro and an
Executive MBA from Pontifícia Universidade Católica do Rio de
Janeiro. Mr. Pinto Paiva joined Ambev in 1991 as a management
trainee and during his career at the company has held leadership
positions in Sales, Supply, Distribution and Finance. He was
appointed Zone President North America in January 2008 and
Zone President Latin America South in January 2009 before
becoming Chief Sales Officer in January 2012.
Michel Doukeris: Zone President Asia Pacific
Born in 1973, he is a Brazilian citizen and holds a Degree in
Chemical Engineering from Federal University of Santa Catarina in
Brazil and a Master’s Degree in Marketing from Fundação Getulio
Vargas Mr. Doukeris joined the company in 1996 and held sales
positions of increasing responsibility before becoming Vice
President Soft Drinks for the Latin America North Zone in 2008. He
was appointed President AB InBev China in January 2010 and
currently serves as Zone President Asia Pacific, a position he has
held since January 2013.
28
João Castro Neves: Zone President North America and CEO of Anheuser-Busch
Born in 1967, Mr. Castro Neves is a Brazilian citizen and holds a
Degree in Engineering from Pontifícia Universidade Católica do Rio
de Janeiro and an MBA from the University of Illinois. He joined
Ambev in 1996 and has held positions in various departments such
as Mergers and Acquisitions, Treasury, Investor Relations,
Business Development, Technology and Shared Services. He was
Ambev’s Chief Financial Officer and Investor Relations Officer and
was appointed Zone President Latin America South in January
2007 before being appointed Zone President Latin America North
and Ambev’s Chief Executive Officer in January 2009.
Ricardo Tadeu: Zone President Mexico
Born in 1976, he is a Brazilian citizen, and received a Law Degree
from the Universidade Cândido Mendes in Brazil and a Master of
Law from Harvard Law School in Cambridge, Massachusetts. He
joined AB InBev in 1995 and has held various roles across the
Commercial area. He was appointed Business Unit (BU) President
for the operations in HILA (Hispanic Latin America) in 2005, and
from 2008 to 2012, served as BU President Brazil.
Stuart MacFarlane: Zone President Europe
Born in 1967, he is a citizen of the UK and received a Degree in
Business Studies from Sheffield University in the UK. He is also a
qualified Chartered Management Accountant. He joined the
company in 1992 and since then has held senior roles in Finance,
Marketing, Sales, and was Managing Director for the company’s
business in Ireland. Mr. MacFarlane was appointed President of AB
InBev UK & Ireland in January 2008, and in January 2012, became
the Zone President Central & Eastern Europe. In January 2014 he
was appointed as Zone President Europe to lead the European
Zone.
29
Peter Kraemer: Chief Supply Officer
Born in 1965, he is a US Citizen. A fifth-generation Brewmaster and
a native of St. Louis, Peter holds a Master's degree in Business
Administration from St. Louis University and a Bachelor's degree in
Chemical Engineering from Purdue University. He joined AB InBev
27 years ago and has held various brewing positions over the
years, including Group Director of Brewing and Resident
Brewmaster of the St. Louis brewery. In 2008, Peter became VP,
Supply, for AB InBev’s North America Zone, leading all brewery
operations, quality assurance, raw materials and product innovation
responsibilities. He was appointed Chief Supply Officer of AB InBev
in March 2016.
30
Executive Compensation (Salary, Equity Options, Other)
In order to ensure executive salaries align with market practices, AB InBev’s base
salaries are reviewed against benchmarks on an annual basis. These benchmarks are
collated by independent compensation consultants in relevant industries and
geographies. Executives’ base salaries are intended to be aligned to mid-market levels
for the appropriate market. Mid-market means that for a similar job in the market, 50%
of companies in that market pay more and 50% of companies pay less. AB InBev’s
executives’ total compensation is intended to be 10% above the 3rd quartile. In 2015
Carlos Brito, the Chief Executive Officer earned a fixed salary of 1.64 million USD. The
other members of the executive board of management earned an aggregate base
salary of 11.04 million USD. Top executives at AB InBev have what is called a variable
performance related compensation element. This is aimed at rewarding executives for
driving short and long term performance.
Below is information regarding the number of stock options granted in 2015 under the
2009 long-term incentive stock option plan to the Chief Executive Officer and other
members of the executive board of management. Options granted on the 22nd of
December 2015, have an exercise price of $125.68 USD, and become exercisable after
five years.
Name Long-Term Incentive options granted
Carlos Brito – CEO 487,804
David Almeida 12,977
Miguel Patricio 55,005
Sabine Chalmers 68,756
Michel Doukeris 45,837
Felipe Dutra 123,761
Pedro Earp 18,335
Luiz Fernando Edmond 82,507
Claudio Braz Ferro 45,837
Claudio Garcia 32,086
Stuart MacFarlane 36,670
Tony Milikin 22,918
João Castro Neves 82,507
Ricardo Tadeu 34,378
31
Compared to other beverage companies the same size, AB InBev falls in the middle of
alike company’s executive compensation plans. Coca Cola’s executive compensation
plan for 2015 as listed by the most current 20 F statement from the SEC’s website
indicates Coca Cola’s total cash compensation is comprised of yearly base pay and
bonuses. Total equity compensation aggregates the grant date fair value of stock and
option awards and long term incentives granted during the fiscal year. Other
Compensation covers all compensation-like awards that don't fit in any of the other
standard categories. Reported compensation does not include change in pension value
and non-qualified deferred compensation earnings.
Name/Title Total Cash Equity Other
Total
Compensation
Irial Finan
$2,496,791.00
$3,516,121.00
$1,542,463.00
$7,555,375.00
Executive Vice
President and
President, Bottling
Investments and
Supply Chain
Muhtar Kent
$6,200,000.00
$7,735,445.00
$655,126.00
$14,590,571.00
Chairman of the
Board and Chief
Executive Officer
J. Alexander M.
Douglas Jr.
$1,936,025.00
$5,396,799.00
$63,682.00
$7,396,506.00
Executive Vice
President
Kathy N. Waller
$1,928,489.00
$2,992,214.00
$59,755.00
$4,980,458.00
Chief Financial
Officer
James Quincey
$2,224,004.00
$4,364,163.00
$199,713.00
$6,787,880.00
President and
Chief Operating
Officer
32
Compared to AB InBev, executives at Coca Cola receive much higher salaries plus
additional compensation. However, stock option remains about the same between the
two companies’ CEOs if analyzed on a yearly basis.
Pepsi Co is another comparable company when analyzing compensation structure. For
its 2015 fiscal year, Pepsi Co, listed the following executives on its annual proxy
statement to the SEC. The chart below features a breakdown of the total annual pay for
the top executives. Total cash compensation information is comprised of yearly base
pay and bonuses. Total Equity aggregates grant date fair value of stock and option
awards and long term incentives granted during the fiscal year. Other compensation
covers all compensation-like awards that do not fit in any of the other standard
categories. Reported compensation does not include change in pension value and non-
qualified deferred compensation earnings.
Executives at Pepsi Co are compensated with a higher annual salary then AB InBev.
Especially the CEO Indra K Nooyi. However, when it comes to equity stock options
Pepsi Co has very similar annual compensation levels to AB InBev. An important fact to
mention between AB InBev, Coca Cola, and Pepsi Co is that Coca Cola and Pespi Co
offer stock options to their executives on an annual basis. AB InBev only offers a stock
options package that can’t be exercised until five years after the options package is
received.
Name/Title Total Cash Equity Other
Total
Compensation
Indra Nooyi
$15,567,308.00
$6,251,479.00
$370,520.00 $22,189,307.00
Chairman of the
Board and CEO
Albert Carey
$5,011,800.00
$2,236,620.00
$81,288.00
$7,329,708.00 CEO, NAB
Hugh Johnston
$4,982,800.00
$2,222,763.00
$25,350.00
$7,230,913.00
Vice Chairman,
EVP and CFO
Thomas Greco
$3,290,588.00
$1,447,120.00
$79,059.00
$4,816,767.00 CEO, FLNA
Ramon Laguarta
$2,735,746.00
$1,111,382.00
$1,320,504.00
$5,167,632.00 CEO, ESSA
33
AB InBev’s Members on the Board of Directors
AB InBev's board structure is composed of four members nominated by EPS SCA, a
Luxembourg company that represents Interbrew's founding families; four members
nominated by BRC S.à.r.l., a Luxembourg company that represents AmBev's founders;
two members appointed in accordance with the terms of the Modelo acquisition and four
independent directors.
Board Member Type
Oliver Grudet Independent Board Member
M. michele Burns Independent Board Member
Kasper Rorsted Independent Board Member
Elio Leoni Sceti Independent Board Member
Gredoire de Spoelberch Representative of the Main Shareholders
Alexandre Van Damme Representative of the Main Shareholders
Carlos Alberto da Veiga Sicupira Representative of the Main Shareholders
Marcel Herrmann Telles Representative of the Main Shareholders
Stefan Descheemaeker Representative of the Main Shareholders
Paul Cornet de Ways Ruart Representative of the Main Shareholders
Paulo Alberto Lemann Representative of the Main Shareholders
Alexandre Behring Representative of the Main Shareholders
Maria Asuncion Aramburuzabala Other Non-Executive Director
Valentia Diez Other Non-Executive Director
34
The Board is assisted into five Committees: The Audit Committee, the Finance
Committee, the Strategy Committee, the Nomination Committee and Remuneration
Committee.
Member's
Names
Audit
Committee
Nomination
Committee
Finance
Committee
Remuneration
Committee
Strategy
Committee
Maria Asuncion
Aramburuzabala Member
Alex Behring Member
Michèle Burns Chair Member
Paul Cornet de
Ways Ruart Member
Stéfan
Descheemaeker Member
Grégoire de
Spoelberch Member
Valentin Diez Member
Olivier Goudet Member Member Member Member
Paulo Lemann Member
Kasper Rorsted Member
Elio Leoni Sceti Member
Carlos Alberto
da Veiga
Sicupira
Member
Marcel
Herrmann
Telles
Chair Chair Member
Alexandre Van
Damme Member Chair Chair
35
AB InBev’s Institutional Share Ownership
According to AB InBev’s ownership summary as reported in the most recent 13F filings,
AB InBev has 542 Institutional Holders, holding 96,225,853 Total Shares.
Outstandingly, this makes up just 5.98% of all shares outstanding. The five largest of
these being: Soroban Capital Partners LP, Gardner Russo & Gardner LLC, Fisher Asset
Management LLC, Franklin Resources INC, and Lone Pine Capital LLC. 4 of these 5
firms have increased their positions in the company’s stock in the last 6 months.
Increases vary from a (3%) change in position to a 141% change in position. Analyzing
institutional shares at a macro level amongst firms in the beverage industry it is
determined that;
AB InBev, 5.98% institutional ownership, Change in Stock Price in last yr. 17.29%
Increased Positions = 14,372,168
Decreased Positions = 6,579,904
Held Positions = 75,273,781
Total Institutional Shares = 96,225,853
CocaCola, 65.36% Institutional Ownership, Change in Stock Price in last yr. 13.36%
Increased Positions = 90,380,802
Decreased Positions = 99,100,041
Held Positions = 2,631,685,660
Total Institutional Shares = 2,821,166,503
Pepsi Co, 71.18% Institutional ownership, Change in Stock Price in last yr. 16.25%
Increased Positions = 50,375,843
Decreased Positions = 43,928,779
Held Positions = 930,123,230
Total Institutional Shares = 1,024,427,852
Molson Millercoors, 87.10% Institutional Ownership, Change in Stock Price in last
yr. 50.14%
Increased Positions = 12,274,858
Decreased Positions = 14,005,398
Held Positions = 42,613,871
Total Institutional Shares = 68,894,127
36
This analysis is interesting considering that when looking at comparable companies of
similar sizes, AB InBev has just 5.98% of shares owned by institutions. This figure is
insignificant when compared to competitors within the beverage industry. By analyzing
Coca Cola, Pepsi Co, and Molson Millercoors one is able to gain a better idea of
average institutional ownership for similar companies. Below is the information
pertaining to what we found
37
Sales and Earnings Estimates
AB InBev operates on a fiscal year that coincides with the calendar year. As a result,
their quarterly results come out in early May, late July, late October and full year results
coming out in late February. At the time of this analysis, the public only has access to
the earning reports from the first 2 quarters of 2016 and they have been lower than
expected. In Q1, AB InBev missed estimates on both the top and bottom line. EPS was
short of the Zacks Consensus Estimate by 36 cents; only having an actual EPS of
$0.51. According to Carlos Brito, as quoted in the Wall Street Journal, some of these
shortfalls in the first quarter could be a result of the macroeconomic issues that are
going on in Brazil, AB InBev’s second largest market. The firm was able to perform
better in Q2 compared to the estimates however fell short again. In Q2, they only
underperformed by 3 cents, missing the $1.09 estimate with a real EPS of $1.06. This
has been a trend in recent quarters. In the past 5 quarters, they have only beat
estimates in 1 quarter, Q4 of 2015, when they beat it earnings estimates by 25 cents,
producing an EPS of $1.56.
38
In the future, the estimates from Zacks Investment Research predict that the EPS will
trend upwards for both the quarterly and yearly earnings.
39
Analyst Recommendations
9/13/2016
Edward Mundy
Jefferies Group
On September 13th 2016, Jefferies Group, an investment bank and institutional
securities firm headquartered in New York, initiated coverage of AB InBev with a buy
rating. Jefferies Group’s Analyst, Edward Mundy, believes that the company is
“understating the cost savings generated through the recent SABMiller deal.” Along with
the buy rating, Jefferies Group set a target price of $146.
11/16/2016
Kenneth Shea
Energy drinks, wine and beer lead us beverage sales growth
(Bloomberg Intelligence)—Energy drink sales rose 4.2% in the four weeks ended Nov 6
to lead major us beverage category growth in IRI all channel data markets. Wine (up
4%) and beer (up 3.8%) were the next top gainers. These categories are benefiting from
positive pricing trends, reflecting in part the increasing emphasis on premium-price craft
offerings. New labels that will require the disclosure of added sugar are promoting
producers to emphasize low-calorie options with natural sweeteners.
Key Point:
- US beer sales up 4%: Bud Light boosted by water-melon-rita - 3.8% raise in four weeks ended on Nov 6 based on 2% higher volumes - 3Q sales down 2.6% according to AB InBev - Bud Light held a leading 17.4% dollar-based us brand share in the period,
helped by new flavor variants, especially watermelon
11/16/2016
Robert E Ottenstein
Recommendation: buy
Evercore ISI
Before the 3Q report came out, he recommended a buy as well with his target price at
137 when the price was 105 on 10/21. He still had a buy recommendation on 10/31
when the price was 100 but his target price was lowered to 127. On 11/16 he
recommended buy again when the price had dropped down to 94, although the target
price stayed at 127. All of these figures are in Euro.
40
Our Forecasts for the Future
Analysts believe that AB InBev earnings will increase for the next couple of years, which
is an encouraging sign. This growth could come from both internal growth as well as
acquisitions. AB InBev acknowledges that there is room to improve and return to having
growth as a company. However, they have decided to remain with their idea to grow
organically despite over a year in decreasing quarterly sales. In the US, revenue has
declined by 1.7% and a drop in sales of 2.1%. AB InBev is attempting to counteract this
decline by revamping their marketing scheme for Bud Light, their most popular beer in
America. To do this, AB InBev is incorporating high profile celebrities in advertisements,
which they believe will help their most popular beer grow in upcoming years. Another
thing that could potentially increase their sales in the next coming years is Corona is
having its 100th year anniversary in 2025. The Corona brand has already had an
increase in sales after making a serious effort to market the celebration. Aside from
organic grown, the acquisition of SABMiller was a landmark event in the alcoholic
beverage industry. AB InBev is optimistic that there $108 billion investment will pay off
substantial dividends. By acquiring SABMiller, AB InBev is able to tap into growing
markets and leverage current SABMiller brands to promote their own brands.
AB InBev is also able to leverage their size to collaborate with entertainment
powerhouses such as the NFL or the Made in America music festival. At these events,
AB InBev doesn’t market their brand as a consumable product, but rather a lifestyle.
This tactical marketing will result in loyal consumers and additional business to business
transactions.
As consumer’s tastes begin to change, AB InBev stays ahead of the curve. In 2016
generic beer brands have become less popular and consumers favor craft beer and
flavored malt beverages. AB InBev leverages brands such as Shock Top, Goose Island,
and Leinenkugel to compete in the craft brewery market. These brands are marketed to
appeal to beer drinkers who enjoy the sensation of consuming niche and unique beers.
In addition to the shift towards craft beer, consumers are also beginning to favor
flavored malt beverages over generic beer. AB InBev combats this change in the
industry by introducing “The Rita Family”, a flavored malt beverage that mimics the taste
of a margarita. The Rita family spearheaded the flavored malt beverage industry and
with the acquisition of Boathouse Beverage LLC it appears that AB InBev will begin to
innovate more. As a result of the company staying ahead of industry trends, experts are
confident they will be able to enjoy sustainable year-over-year growth.
41
Historical Financial
Analysis
42
Table of Contents
Historical Financial Analysis
Topic Page #
Executive Summary 42
Stock Price Performance
Price V. Competitors 43
Absolute Performance 44
Financial Performance
Growth Performance 45
Financial Performance Metrics 48
DuPont Analysis 50
Altman Z-Score Analysis 53
43
Executive Summary of Historical Financial Analysis
Growth of Major Metrics
LTM 12 months
Jun-30-2016
5 yr Compounded
Rate Total Revenue -7.55% 2.30% Gross Profit -6.27% 4.03% EBITDA -10.53% 2.28% EBIT -10.17% 2.63% Earnings from Cont. Ops. -54.22% -4.75% Net Income -59.03% -3.90% Diluted EPS before Extra -59.09% -4.58% Accounts Receivable -11.64% 3.86% Inventory 5.46% 3.80% Net PP&E 0.07% 3.05% Total Assets 38.14% 10.30% Common Equity -28.65% -1.61% Cash from Ops. -16.11% 2.83% Capital Expenditures 4.57% 8.03% Levered Free Cash Flow 77.84% 31.09% Dividend per Share -44.89% 15.17%
In the recent LTM from June 30, 2016, there are
many metrics that show negative growth rates. This
is a potential cause of concern, however, if you look
at the five-year compounded rate AB InBev shows
positive growth in 75% of the major metrics.
Stock Price Growth
AB InBev shows a consistent rise in stock price with
decreasing average stock price growth over the
course of the last five years. A significant amount of
this growth is from acquiring smaller breweries.
Compared to similar competitors within the industry,
AB InBev’s standard deviation and coefficient of
variance are right in the middle. Confirming a long
term and consistent growth state. Additionally, the
beverage industry, more specifically the alcohol
industry, is relatively inelastic with low betas.
$-
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
AB InBev Molsoncoors BostonBrewing
Coca Cola
Average Annual Stock Price
2011 2012 2013 2014 2015 2016
Major Ratio Analysis
AB InBev’s ability to generate profit from money invested by shareholders dwarfs the main competitor Molson
Coors. Although slightly under performing Coca-Cola and Boston Beer Co., ROE remains constant with the
exception of 2013 when the firm reported huge profit margins as a result of absorbing Grupo Modelo’s net
income. The Z Score for AB InBev over the past three years has hovered between 1.69 and 2.25 signaling
slight financial destress.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
2011 2012 2013 2014 2015
Return On Equity
Year
AB InBev
Molson Coors
Boston Beer
Coca Cola
44
Stock Price Performance V. Industry Competitors
AB InBev shows a consistent rise in stock price over the course of the last five years
compared to other competitive beverage companies. When analyzing average annual
stock price growth rates, AB InBev decreased over the last five years signaling the
company transitioning into a more mature state. A significant amount of the growth in
AB InBev from 2011 until the present is a result of acquiring smaller breweries.
45
Absolute Performance & Industry Competitors
Compared to similar competitive companies within the industry, AB InBev’s standard
deviation and coefficient of variance are in the middle of the industry. Confirming a long
term and consistent growth state with an overall smaller standard deviation and
coefficient of variance. The beverage industry, more specifically the alcohol industry is
relatively inelastic with low betas. 100 dollars invested at the start of 2011 would have
grown to 213 dollars today.
20.61 20.11
58.01
2.92
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
AB InBev Molson Coors Boston Brewing Coca Cola
Standard Deviation of Stock Prices
0.20
0.31 0.31
0.07
-
0.05
0.10
0.15
0.20
0.25
0.30
0.35
AB InBev Molson Coors Boston Brewing Coca Cola
Coefficient of Variance of Stock Prices
46
Growth Performance
AB InBev shows consistent growth performance over the past 4 time periods. Even if it
is a down year compared to the previous year. There are no significant changes in key
statistics such as total revenue, gross profit, EBITDA, EBIT, earnings from continuing
operations, net income and diluted EPS excluding extra items. The first graph shows
the total amounts in millions of EUR. The second graph has the same statistics with the
same corresponding colors but is showing growth percentage.
47
AB InBev’s growth in some of the important metrics over 2 different time periods is
encouraging. Over the past 5 years, 75% of the metrics have shown positive growth
while only 25% of them have shown positive growth for the LTM since June 30th 2016.
48
Compared to performance metrics of Molson Coors, Coca Cola and Boston Beer, AB
InBev is right in the middle in terms of growth rates. Boston Beer is a company that has
shown positive growth and is continuing to grow at a fast rate. However, they are in a
different stage of the life cycle of a business. Due to the craft beer market starting to
grow tremendously in the US, Boston Beer is able to trick consumers into believing they
are a leader in brewing craft beer. Boston Beer also has a good position in the rapidly
expanding flavored malt liquor market with their Angry Orchard Cider. AB InBev is at
more of a steady state and their growth rate is beginning to plateau. A significant
amount of AB InBev’s growth now comes from the acquisition of other companies, such
as the very recent acquiring of SABMiller. This chart below shows the growth rate for
AB InBev, Coca Cola, Boston Beer and Molson Coors as well as other important
comparable metrics.
AB InBev Coca Cola Boston Beer Molson Coors
Total Revenue 2.30% 0.50% 14.60% 1% Gross Profit 4.03% 0.00% 12.80% -0.50%
EBITDA 2.28% 0.80% 14.90% 0.50%
EBIT 2.63% 0.70% 13.20% -2.50%
Earnings from Cont. Ops. -4.75% -9.50% 8.20% -10.80% Net Income -3.90% -9.50% 8.20% -10.70%
Diluted EPS before Extra -4.58% -8.30% 9.50% -11.70%
Accounts Receivable 3.86% -3.30% 16.40% -2.20%
Inventory 3.80% -1.50% 14% 1.00%
Net PP&E 3.05% -3.20% 24.10% 1.80% Total Assets 10.30% 3.30% 15.70% 3.20%
Common Equity -1.61% -5.40% 17.80% 3.90%
Cash from Ops. 2.83% 0.80% 10.80% 4.40%
Capital Expenditures 8.03% 0.10% 31.80% 6.30% Levered Free Cash Flow 31.09% 7.20% 5.70% -43.80%
Dividend per Share 15.17% 8.40% NA 7.20%
49
Financial Performance Metrics
AB InBev’s comparable statistics with Molson Coors Brewing Company, Boston Beer
Co and Coca Cola Co have been analyzed and are presented below. AB InBev is most
comparable to the size of Coca Cola in the beverage industry. AB InBev is significantly
larger than the competition in the brewer’s industry.
AB InBev Coca Cola Boston
Beer Molson Coors
Brewing Equity Valuation Market Cap (mm) € 191,435.00 $182,654.40 $1,909.20 $23,581.10 P/E 55.4x 24.3x 23.2x 56.9x Price/BV 6.2x 6.9x 4.6x 2.4x P/Tang BV NM 61.9x 4.7x 7.9x Margins Gross Margin % 61.10% 60.30% 51.40% 40.30% EBITDA Margin % 32% 27.70% 19.90% 18.10% Earnings from Cont. Ops. Margin % 12.60% 17.70% 9.40% 10.90% Net Income Margin % 9.30% 17.60% 9.40% 10.90% Leverage Total Debt/EBITDA 6.8x 4.0x 0.0x 4.8x Total Debt/Equity 288% 180.40% 0.10% 30.70% Total Debt/Capital 74.20% 64.30% 0.10% 23.50% Enterprise Valuation TEV (mm) € 234,067.20 $207,194.40 $1,882.10 $23,637.70 TEV/Total Revenue (LTM) 6.2x 4.8x 2.0x 6.7x TEV/EBITDA (LTM) 16.4x 16.4x 10.0x 20.6x TEV/EBIT (LTM) 19.9x 19.3x 13.4x 26.9x Profitability Return on Assets % 5% 6.70% 13.70% 1.60% Return on Capital % 6.60% 8.50% 18.90% 1.90% Return on Equity % 12% 27.50% 19.10% 4.40% Coverage Current Ratio 2.1x 1.2x 1.5x 2.4x EBITDA/Interest Exp. 5.1x 20.5x NA 5.6x (EBITDA-CAPEX)/Interest Exp. 3.7x 16.2x NA 3.3x
50
Below, comparable ratios have been analyzed and presented for both the brewers and
beverage industry. This shows that AB InBev is not only the largest in the brewer’s
industry, but also the Beverage industry.
Equity Valuation Brewers Beverages Market Cap. ($mm) $652,316.60 $1,562,825.90 P/E 36.5x 29.4x Price/BV 4.1x 4.4x P/Tang BV 8.5x 7.7x
Margins Gross Margin % 41.0% 41.6% EBITDA Margin %† 22.0% 20.1% Earnings from Cont. Ops. Margin % 14.7% 12.4% Net Income Margin % 14.1% 11.9%
Leverage Total Debt/EBITDA† 0.6x 1.0x Total Debt/Equity 26.1% 34.1% Total Debt/Capital 20.7% 25.4%
Enterprise Valuation TEV ($mm)† $776,880.20 $1,799,991.90 TEV/Total Revenue (LTM)† 3.5x 3.3x TEV/EBITDA (LTM)† 14.3x 14.7x TEV/EBIT (LTM)† 19.0x 18.6x
Profitability Return on Assets % 4.9% 5.8% Return on Capital % 6.6% 7.8% Return on Equity % 11.1% 14.5%
Coverage Current Ratio 1.3x 1.3x EBITDA/Interest Exp.† 28.7x 20.3x (EBITDA-CAPEX)/Interest Exp.† 8.3x 9.5x
51
DuPont Analysis of AB InBev & Competitors
AB InBev’s reports indicate exceptional return on equity (ROE) over the past 5 years. Compared to industry competitor’s ROE, AB InBev is relatively consistent with the rest of the beverage industry. Miller Coors, in terms of market cap, is AB InBev’s closest competitor in the alcoholic beverage industry. Over the past 5 years, AB InBev’s metrics dwarf Molson Coors especially in terms of ROE.
Using the DuPont Analysis, it can be inferred that AB InBev is more efficient at generating profit with money shareholders have invested than Molson Coors. In 2013, AB InBev absorbed the net income and assets of Grupo Modelo. The absorption is prevalent in the significant increase of AB InBev’s ROE in 2013. Expect a similar increase when AB InBev’s absorbs SABMiller’s financials in 2016.
DuPont Analysis of Anheuser-Busch Inbev SA (NYS: BUD) Financial Statement Data ($ millions) 2015 2014 2013 2012 2011
Sales $43,604 $47,063 $43,195 $39,758
$39,046 Net Income (Income for Primary EPS) 8,273 9,216 14,394 7,223 5,855 Assets 138,593 142,108 132,144 117,524 113,385 Equity 46,055 50,169 45,754 39,317 36,376 Three-Step DuPont Model: Net Profit Margin (Net Income ÷ Sales) 19.0% 19.6% 33.3% 18.2% 15.0% Asset Turnover (Sales ÷ Assets) 0.31 0.33 0.33 0.34 0.34 Equity Multiplier (Assets ÷ Equity) 3.01 2.83 2.89 2.99 3.12
Return on Equity 17.96% 18.37% 31.46% 18.37% 16.10%
DuPont Analysis of Molson Coors Brewing Co. (NYS: TAP) Financial Statement Data ($ millions) 2015 2014 2013 2012 2011
Sales $5,127 $5,928 $6,000 $5,615
$5,170 Net Income (Income for Primary EPS) 360 514 564 444 665 Assets 13,136 14,788 15,896 14,318 12,561 Equity 7,453 8,251 8,303 7,807 7,723 Three-Step DuPont Model: Net Profit Margin (Net Income ÷ Sales) 7.0% 8.7% 9.4% 7.9% 12.9% Asset Turnover (Sales ÷ Assets) 0.39 0.40 0.38 0.39 0.41 Equity Multiplier (Assets ÷ Equity) 1.76 1.79 1.91 1.83 1.63
Return on Equity 4.82% 6.23% 6.80% 5.69% 8.61%
52
Compared to Boston Beer Co. and Coca-Cola, AB InBev is slightly worse at utilizing shareholder’s money for profit. Boston Beer reports strong ROE because they are growing in order to be a legitimate competitor to Molson Coors and AB InBev. With a significantly smaller market cap, Boston Beer is a fast growing company in a fast growing industry, which allows them to show strong net income and ROE. Coca-Cola, while still in the beverage industry, does not sell alcoholic beverages and can leverage their resources differently in order to keep their ROE consistent.
DuPont Analysis of Boston Beer Co Inc (NYS: SAM) Financial Statement Data ($ millions) 2015 2014 2013 2012 2011
Sales $1,204 $966 $794 $629 $558 Net Income (Income for Primary EPS) 99 91 71 60 65 Assets 625 525 402 316 266 Equity 449 369 274 215 175 Three-Step DuPont Model: Net Profit Margin (Net Income ÷ Sales) 8.2% 9.4% 8.9% 9.5% 11.6% Asset Turnover (Sales ÷ Assets) 1.93 1.84 1.98 1.99 2.10 Equity Multiplier (Assets ÷ Equity) 1.39 1.42 1.47 1.47 1.52
Return on Equity 21.99% 24.65% 25.80% 27.75% 37.10%
DuPont Analysis of Coca-Cola Co (NYS: KO) Financial Statement Data ($ millions) 2015 2014 2013 2012 2011
Sales $44,294 $45,998 $46,854 $48,107
$46,542 Net Income (Income for Primary EPS) 7,351 7,098 8,584 8,994 8,572 Assets 91,058 91,039 88,116 83,074 76,448 Equity 27,937 31,747 32,982 32,213 31,319 Three-Step DuPont Model: Net Profit Margin (Net Income ÷ Sales) 16.6% 15.4% 18.3% 18.7% 18.4% Asset Turnover (Sales ÷ Assets) 0.49 0.51 0.53 0.58 0.61 Equity Multiplier (Assets ÷ Equity) 3.26 2.87 2.67 2.58 2.44
Return on Equity 26.31% 22.36% 26.03% 27.92% 27.37%
53
Over the past five years, AB InBev reported consistent ROE. Using the DuPont Analysis, it is clear that the firm is the dominant force in the brewing industry. Although Boston Beer usually has a higher ROE, AB InBev’s profit margins are unmatched by any other competitor. The metrics increase AB InBev reported in 2013 was a result of their acquisition of Grupo Modelo. Investors saw net income, profit margins, and ROE increase dramatically. Experts are enthusiastic for the company’s financials when the acquisition of SABMiller occurs in 2016, expect another increase in the firm’s DuPont metrics.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
2011 2012 2013 2014 2015
Return On Equity %
Year
DuPont Analysis
AB InBev
Molson Coors
Boston Beer
Coca Cola
54
Altman’s Z-Score Analysis
The Altman’s Z-Score is a statistic used to determine if a company is facing financial distress. According to the Z-Scores from S&P Capital, AB InBev is and has been facing financial distress for the past three and a half years. In this time frame, AB InBev hasn’t reached the score of 2.675, the benchmark of not having any financial distress.
One reason for the low Z-Score is because their total assets grew by 41.96% in the period, while EBIT dropped by 4.04%. The part of the Z-Score calculation that has the
highest weight is 𝐸𝐵𝐼𝑇
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 , so this will cause the score to significantly decrease. 4 out
of the 5 calculations that go into the Z-Score have a denominator of Total Assets. A growth this large in Total Assets will unavoidably force the total Z-Score to decrease. Investors consider this worrisome because for such a large company, ideal Z-Score numbers would be much higher. Compared to Coca Cola, Boston Beer, and Molson Coors, AB InBev has a low Z-Score.
1.69
3.552.83
11.24
0.00
2.00
4.00
6.00
8.00
10.00
12.00
AB InBev Coca Cola Molson Coors Boston Beeer
Altman Z Score
55
Capital Structure
Analysis
56
Table of Contents
Capital Structure Analysis
Topic Page #
Executive Summary 56
Cost of Debt & Equity 57
Capital Stack 59
Debt Ratios 60
Beta Calculations 61
Distribution to Shareholders 62
57
0.57
3.212.11
7.47
0.130.46 0.71
1.89
7.49
0.14
0
1
2
3
4
5
6
7
8
Debt/Assets Debt/Equity CurrentAssets/Current
Liabilitys
Debt/EBITDA Cash FlowsOps/Total Debt
Debt Ratios
AB InBev Industry Average
AB InBev has had a decreasing plowback ratio since 2013 due to preparation of the SAB Miller acquisition.
The plowback ratio in 2008 is significantly low due to InBev acquiring Anheuser Busch.
The company is using the retained earnings to purchase other companies rather than to grow internally.
Executive Summary of Capital Structure Analysis
1.07 1.08 0.98 1.02
1.17
3.21
0
0.5
1
1.5
2
2.5
3
3.5
2010 2011 2012 2013 2014 2015 2016
Debt/Equity Ratio In 2016, AB InBev’s debt to equity ratio has increased to a level of 3.21, a level that has been triple the historical rates.
This is not only exceptionally high for AB InBev but also for the brewers’ industry.
The industry average is split the opposite direction, having 71% equity and only 21% debt.
AB InBev’s debt ratios are in line with the brewer industry average for all ratios except debt to equity.
The debt to equity is abnormal due to the large debt issuance to finance the SAB Miller acquisition.
0%
20%
40%
60%
80%
100%
2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
Plowback Ratio
58
Cost of Debt & Equity
Cost of Equity = 6.36%
Cost of Debt = 7.4%
The cost of equity is derived from the Capital Asset Pricing Model (CAPM)
6.36% = 1.6% + 1.19 * 4.0%
This CAPM equation assumes a ten-year treasury constant maturity rate as the risk free
rate, a standard market risk premium of 4.0%, and AB InBev’s current beta of 1.19. The
market risk premium has decreased since the financial crisis in 2008, so the cost of
equity has generally decreased as well. The historical cost of equity over the past ten
years is 8.75%. This was calculated by averaging the costs, while weighting the years
similar to AB InBev’s activities in 2016 more. Overall CAPM is not the most practical
model to use to calculate AB InBev’s historical cost of capital due to the constant
change in the debt to equity ratio.
The cost of debt is derived from the average coupon payments of the outstanding debt.
This average is derived from the $59 billion of new debt added in 2016 and the debt that
was outstanding prior to this year.
The calculation of WACC depends heavily on the debt to equity proportion. Using the
costs of debt and equity above and the debt proportion of 71% and equity of 29%, the
WACC is calculated to 7.10%. The WACC has been changing over the past 10 years
due to the change in capital structure.
0
2
4
6
8
10
12
14
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Historical WACC
WACC
59
Debt & Equity Weights
Values Debt Equtiy
Book Value 76% 24%
Market Value 32% 68%
Target Capital Value 29% 71%
1.07 1.08 0.98 1.021.17
3.21
0
0.5
1
1.5
2
2.5
3
3.5
2010 2011 2012 2013 2014 2015 2016 2017
Debt/Equity Ratio
60
Capital Stack
The capital stack graph shows how AB InBev’s book value of debt and equity
proportions have changed since 2010. In these seven years, the proportion has been
fairly constant, with equity staying between 41% and 48% of the companies financing.
In 2016, the equity side decreased significantly to 29% due to the $59 billion debt
issuance this year. The SAB Miller takeover was financed with mostly debt, increasing
the debt proportion up to 71%. The equity was 73% in 2008, the year that InBev
acquired Anheuser Busch. It apprears that when AB InBev has a major acquisition, the
company takes out debt to purchase the company that they are acquiring.
74%64% 59% 55% 55% 52% 53% 56%
71%
26%36% 41% 45% 45% 48% 47% 44%
29%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010 2011 2012 2013 2014 2015 2016
Capital Stack
Debt Equity
61
Debt/Equity & Financial Debt Ratios
AB InBev’s primary debt ratios listed in the graph above have maintained in line with the
Brewers Industry Average, with the exception of the Debt/Equity ratio. AB InBev’s
debt/equity ratio is 352% larger than the Brewers Industry Average. The significant
increase in AB InBev’s debt level can be explained by the recent purchase of SAB Miller
for $108 billion, totaling approximately 99% of AB InBev’s debt outstanding. The other
ratios have maintained their levels because the acquisition increased both assets and
liabilities to the extent of what SAB Miller had on their books.
0.57
3.21
2.11
7.47
0.130.46
0.71
1.89
7.49
0.14
0
1
2
3
4
5
6
7
8
Debt/Assets Debt/Equity Current Assets/CurrentLiabilitys
Debt/EBITDA Cash Flows Ops/TotalDebt
Debt Ratios
AB InBev Industry Average
62
Beta Calculations
Current Listed Beta 1.19 Current Equity Beta 1.19 Target Equity Beta 0.523
Five Year Beta 0.45 Current Asset Beta 0.33
When levering and un-levering AB InBev’s beta to the target capital level (Industry
average level of debt and equity), AB InBev’s current beta is brought down by .667. This
numerical difference in asset betas is caused by the difference in debt to equity levels of
AB InBev and the industry average. The current debt to equity ratio for AB InBev is 3.21
while the industry average is only .71. This high debt to equity ratio drives our current
equity beta higher, due to the higher volatility of the stock based on AB InBev’s
acquisition of SAB Miller. The amount of capital that AB InBev has levered to finance
the acquisition is worrisome to investors, increasing the volatility of the stock. This
volatility has only recently grown, as the five-year beta has averaged to a low rate of
.45.
63
Distributions to Shareholders
AB InBev has historically retained a significant proportion of earnings but a sharp
decline in the plowback ratio the past two years could lead to a shift in traditional
practices for the company. With the exception of 2008, AB InBev maintained their
plowback ratio in the range of 62%-78% indicating that the firm preferred to reinvest the
majority of its earnings back into the company. In 2014 and 2015 AB InBev’s plowback
ratio dropped to 35% and 19% respectively, a significant decrease in reinvestments to
the firm. AB InBev has slowed reinvestments back into the firm due to alternative uses
of retained earnings, specifically acquiring other companies. The extremely low
plowback rate in 2008 is due to InBev acquisition of Anheuser Busch.
Due to the sharp decrease in the plowback ratio, it can be assumed that the firm will
invest less back into the company in the short-term future. Despite a decrease in
plowback ratio, the 2016 percentage of retention is expected to be higher than 2015’s
19%. One theory behind the decrease in the plowback ratio was AB InBev using
retained earnings to assist in the acquisition costs of SABMiller.
The plowback ratio was calculated using the following equation
(Net Income – Dividends Paid)/Net Income = Plowback Ratio
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
Plowback Ratio
2015 2014 2013 2012 2011 2010 2009 2008 2007 2006
Dividends Paid 7966 7400 6253 3632 3088 1924 1313 2088 769 617
Net Income 9867 11302 16518 9434 7959 5762 5877 2099 3048 2126
Plowback Ratio 19% 35% 62% 62% 61% 67% 78% 1% 75% 71%
64
Financial Statement
Forecasts
65
Table of Contents Financial Statement Forecasts
Topic Page #
Executive Summary 65
Pro Forma Parameters and Assumptions 66
Projected Fade Rate Graph Analysis 67
Historical and Pro Forma Ratios
Efficiency Ratios 75
Leverage Ratios 77
Coverage Ratios 78
Profitability Ratios 79
Pro Forma DuPont Analysis 80
Pro Forma Altman Z-Score 80
66
Executive Summary of Financial Statement Forecasts
Critical Pro Forma Ratios:
Debt Ratio:
AB InBev is a signigiantly leveraged company and pro forma analysis indicated the company
will continue to embrace debt as its main source of capital.
Gross Profit Margin:
AB Inbev’s gross profit margin is an encouraging sign for investors. As a result of gross profit
margin being the first level of profitability, the high margin is a sign that AB InBev is an expert at
depriving profit from their main operation.
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Debt Ratio 0.69 0.86 0.84 0.84 0.84 0.83 0.83 0.82 0.81
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Gross Profit Margin 69% 65% 66% 67% 68% 68% 69% 70% 70%
Sales Growth Rate:
Based on the sales growth rate for the InBev acquisition of Anheuser Busch and the relative
sizes of the companies, the acquisition of SAB Miller will cause a 27% sales growth rate
increase. The addition of the SAB Miller revenue will bring the total sales amount to over $60
billion annually. The growth rate will level off to a long term rate of 3% growth in the horizon.
This growth is critical due to all other functions of the business relying off of sales.
Projected DuPont Analysis & Altman Z-Score
12/31/2015 12/31/2017 12/31/2025
Net Profit Margin 0.19 0.03 0.21
x Asset Turnover 0.32 0.24 0.22
x Leverage Ratio 3.20 6.28 4.88
Return on Equity 20% 4% 23%
67
Pro Forma Parameters and Assumptions
The significant size of AB InBev following the acquisition of SAB Miller causes the sales
projections to show growth in the near future. According to the ‘wall street estimates’ on
Morningstar, AB InBev is valued as a buy stock from four out of the seven analysts. The
positive growth of this company is apparent based on the market share and popularity
of the brands it owns. The sales growth rate increased 128% for the year after the
takeover of Anheuser Busch and the SAB Miller takeover will show a significant
increase in sales as well. AB InBev management has shown tremendous ability to get
rid of duplicate costs after an acquisition. The SAB Miller deal comes with a cost
savings of $1.4 billion, part of which comes from a job reduction of about 3%.
(Bloomberg)
AB InBev has a significant competitive advantage over their competition, an advantage
that has grown with the acquisition of SAB Miller. SAB Miller was one of their biggest
competitors in the brewers’ industry and the two now combine to control more than a
fourth of the world beer market. AB InBev also owns a 62% interest in the 3rd largest
company in the brewers’ industry, Ambev. (Philip Gorham) Due to anti-trust laws some
of the businesses will have to be sold off in certain places around the country. “But even
after that, it would have a leading market share in the U.S. (46%), Mexico (57%), Africa
(33%), Brazil (63%) and the rest of Latin America (62%), according to Plato Logic.” –
WSJ article by Tripp Mickle.
Having the largest market share in most major markets will prove to grow the already
massive sales numbers worldwide. The economic leverage of AB InBev is growing with
every acquisition that was made in the past and the future acquisitions that will be
made. The SAB Miller takeover is expected to grow sales to over $60 billion annually.
This can be attributed to the popularity of the beer brands that are owned by SAB Miller
and AB InBev. “AB InBev owns five of the world's largest beer brands by volume, either
directly or through equity ownership in the brand operator. Two of those brands, Corona
Extra and Brahma, are in the premium category, where brand loyalty is higher than the
mainstream and craft beer segments. Even in the mainstream category, the firm's
leading brands have instantly recognizable brand equity among global consumers.”
(Philip Gorham)
The forecasting part of the model is mainly based on the inputs tab. This tab uses a
starting rate for different growth rates and ratios and projects out to a long term rate
based on a fade rate. Each ratio and growth rate has different starting rates and fade
rates, all depending on various factors. Some ratios are much more volatile than others.
Many of the ratios follow a pattern around AB InBev’s history of acquisitions. In 2008,
InBev acquired Anheuser Busch, which had effects on all of the ratios and growth rates
in that year or in the following years. Based on the size of that acquisition and the
similarities with the SAB Miller takeover, that became official this year, many of the
assumptions were based on previous trends following the AB takeover.
68
Fade Rate of Financial Ratios
AB InBev’s sales grew 128.3% in 2009 because of the acquisition of Anheuser-Busch.
This merger created the largest brewer in the world. This increase in sales causes all of
the ratios in relation to sales to be abnormal when compared to historical analysis.
Sales Growth Rate
The sales growth rate will return to a highly positive value due to the acquisition of SAB
Miller but will decrease to a slightly negative number in the following year, as it is not
possible to sustain such a growth rate of sales. The rate will slow in the horizon to a
steady growth rate as the two companies become one. The sales volumes for the 3rd
Quarter was down 0.9% compared to the previous year’s Q3, mainly due to the large
drop in sales in Brazil. Struggles in Brazil were shared by other companies, such as
Coca Cola, so this is not thought of as a continuing problem.
COGS/Sales
The cost of goods sold to sales ratio will increase 5% due to the SAB Miller takeover, as
it did when Anheuser Busch merged with In-Bev. It will then drop to a long term rate of
28% because of the synergies that the merger will create, which is 3% lower than the
average has been for the past ten years.
69
SGA/Sales
The selling, general and administrative expenses will drop 3% in the first year, similar to
the 2009 merger and then will go into a steady, consistent rate of 28% for the future. It
is lower than the ratio has been averaged over the past ten years due to the synergies
that come with the takeover of SAB Miller.
Depreciation/Net PPE
The depreciation expense has hovered between 15.5% and 17.5%, with 2 exceptions,
in the past 10 years. There are no indicators that this will change significantly in the
future. As a result the analysts stayed with the average when analyzing the pro forma.
Cash/Sales
The cash ratio peaked for the two largest takeovers in the history of AB InBev. As a
result of the takeovers being all cash deals, they were increasing their cash amount to
pay for these. The newest SAB Miller acquisition was financed with debt so the cash
ratio will not spike, as it did for the other two.
70
Inventory/Sales
The inventory to sales ratio spiked by jumping up 8% in the year of the Anheuser Busch
takeover and then falling 12% the year after. It has stayed relatively constant from 2009
until the present. The SAB Miller takeover will increase the ratio by 2.5% but then will
drop back down to the average for the horizon.
AR/Sales
The accounts receivables increase with each large acquisition so the SAB Miller
takeover will be no different. This acquisition will stay with the trend of being smoother
than the previous takeover.
Other Short-term Operating Assets/Sales
The takeover of SAB Miller will cause other short-term operating assets to increase in
the first 2 years, as it will take time to combine the two industry titans. It will then level
out to a steady rate.
71
Net PPE/Sales
The net PPE added from SAB Miller is 40% of AB InBev’s current Net PPE value. This
will cause an increase of the ratio followed by a steady rate out into the horizon, similar
to the takeover of Anheuser Busch although this will be more gradual.
Other Long-Term Operating Assets/ Sales
The long-term operating assets are essential to the brewing business and will increase
with the acquisition of SAB Miller as the two work to combine the two businesses.
AP / Sales
The accounts payable increased for the year of the InBev and Anheuser Busch. It will
act in a similar manner for the SAB Miller takeover and then level out into the horizon.
72
Accruals / Sales
The merger of Anheuser Busch and InBev caused an increase of 35% in accruals. The
acquisition of SAB Miller will cause an increase, but it will be less of one. The size of AB
InBev today will help them deal with the merger and have less of an increase in
accruals, only a 7% increase and then level out into the horizon.
Other Current Liabilities / Sales
Other current liabilities will increase for this acquisition, similar to the 2008 merger but
will be less severe. The increase will only be 2.5% compared to the 4% increase back in
2008, as AB InBev is more equipped to handle this size of a takeover.
Deferred Taxes / Sales
Deferred taxes increase with a large acquisition due to the purchase price including
goodwill. The deferred taxes on goodwill are high and with a large amount of goodwill
involved in the SAB Miller takeover, the deferred taxes from the takeover will increase
up to 82% and fall slowly into the horizon.
73
Tax Rate
EBT will be lower in the years after the takeover of SAB Miller due to a higher interest
expense. Once this expense balances out with the growing EBT, the tax rate will
balance out to a normal rate of 19.5%.
Dividend Policy
There will be a decrease in the dividends paid out to shareholders after the SAB Miller
takeover. The money will be plowed back into the company to create the synergies
needed to make this acquisition profitable.
Non-Operating Income / Sales
The non-operating expenses will increase with the acquisition and then it will balance
out to a more desired and sustainable level. Acquisitions cost the company money from
increased costs of blending the two companies together.
74
Extraordinary Income / Sales
The extraordinary expenses will level out to 3.14% of sales, 100 bps higher than the
average has been due to the synergies that will come from the acquisition with SAB
Miller.
Long-term Investments / Sales
The long-term investment account comes from investments in unconsolidated
subsidiaries. This ratio will increase to 45% with the acquisition of SAB Miller and will
fade out to a long-term rate once the two companies are consolidated.
Other long-term Liabilities / Sales
The other long-term liabilities increased with the Anheuser Busch merger and balanced
out to a more normal level within two years. This trend will cause the ratio to increase to
15% with the SAB Miller takeover and balance out by 2019.
75
Interest Expense
The interest expense is going to increase significantly due to the financing costs of the
SAB Miller takeover. I have increased the starting rate but I left the long-term rate
because the expense should drop to a normal level after the financing cash flows settle
down after this takeover.
76
Historical and Pro Forma Financial Ratios
Efficiency Ratios
I. Current Ratio
Upon analyzing AB InBev’s current assets in relation to the firm’s current liabilities,
data shows that the firm’s liabilities are greater that its assets. It is expected that until
2019, AB InBev will be unable to pay off their creditors if obligations came due.
II. Quick Ratio
As a result of AB InBev being a consumer goods company, Inventory is a significant
contributor to current assets. When examining the quick ratio as opposed to the current
ratio, it is assumed that AB InBev would be unable to pay off their creditors if obligations
came due until 2020.
III. Inventory Turnover Ratio
Although the inventory turnover ratio pro forma indicates that AB InBev will sell their
entire average inventory at least four times in a given year, the ratio is significantly less
than industry competitor Molson Coors. In 2015, AB InBev reported an inventory
turnover ratio of 4.66 whereas Molson Coors reported a ratio of 10.99. The discrepancy
between the two companies could be a result of the fact that AB InBev’s average
inventory is greater than Molson Coors.
IV. Days Sales of Inventory
In order to determine how many days it takes AB InBev to turn its inventory into
sales, the inventory turnover ratio was divided by 365. In 2015 it takes the company
approximately 78 days to turn bottled beer into cash. The pro forma indicates that the
2015 figure will increase to 83 days as a result of increased production due to SABMiller
acquisition.
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Current Ratio 0.13 0.28 0.66 0.99 1.22 1.41 1.56 1.70 1.83
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Quick Ratio 0.54 0.10 0.20 0.56 0.89 1.13 1.31 1.47 1.62
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Inventory Turnover Ratio 4.66 4.38 4.36 4.35 4.34 4.33 4.32 4.31 4.30
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Days Sales of Inventory 78.31 83.43 83.67 83.90 84.11 84.32 84.51 84.69 84.86
77
V. Total Asset Turnover
AB InBev’s low asset turnover may cause some concern amongst potential
investors, however the ratio is acceptable within the industry and actually
outperforms industry competitor, Molson Coors. In 2015, AB InBev reported a total
asset turnover of 0.32 while Molson Coors reported a total asset turnover of .29.
VI. Fixed Asset Turnover
As a result of AB InBev’s significant amount of PP&E the fixed asset turnover is only
slightly higher than the total asset turnover. Again, even though it is a low number it is
acceptable within the brewer industry.
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Total Assets Turnover 0.32 0.17 0.24 0.26 0.26 0.25 0.24 0.24 0.23
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Fixed Asset Turnover 0.37 0.18 0.26 0.30 0.32 0.32 0.33 0.33 0.33
78
Leverage Ratios
I. Debt Ratio
The debt ratio for AB InBev indicates that the firm is significantly leveraged
compared to its competitors. In 2015, AB InBev recorded a debt ratio of 0.69 while
Molson Coors reported a debt ratio of .43. What is concerning is that AB InBev is only
expected to become more leveraged in the future, implying greater financial risk.
II. Long Term Debt Ratio
Similar to the debt ratio, AB InBev’s projected long term debt ratio indicates a firm
that is dependent on debt to grow or sustain business.
III. Debt to Equity Ratio
AB Inbev’s debt to equity ratio is currently a major concern and is projected to only
get worse. As a result of the high ratio, investors can tell that the company is dominated
by lenders and creditors rather than shareholders.
IV. Long-Term Debt to Total Capitalization Ratio
Again, when analyzing AB InBev’s long-term debt to total capitalization ratio, the
amount of leverage the company takes on in concerning. Molson Coors’ long-term debt
to total capitalization ratio in 2015 was 0.29 as opposed to AB InBev’s at 0.53.
V. Equity Multiplier
An encouraging multiple for AB InBev’s shareholders is its equity multiplier. In 2015
its multiple was 3.2, and the pro forma projection indicates it will only become stronger.
As a comparable Molson Coors’ 2015 equity multiplier was 2.04.
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
L/T Debt Ratio 0.48 0.48 0.59 0.64 0.64 0.64 0.64 0.64 0.63
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Debt/Equity Ratio 2.20 6.31 5.28 5.11 5.13 5.03 4.84 4.60 4.35
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Equity Multiplier 3.20 7.31 6.28 6.11 6.13 6.03 5.84 5.60 5.35
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
L/T Debt to total capitalization ratio 0.53 0.71 0.74 0.76 0.76 0.76 0.76 0.75 0.74
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Debt Ratio 0.69 0.86 0.84 0.84 0.84 0.83 0.83 0.82 0.81
79
Coverage Ratios
I. Cash Coverage Ratio
AB Inbev’s cash coverage ratio is favorable. In 2015, it is an astronomical 10.26
indicating that the company has a significant amount of cash available to pay for interest
expense. The cash coverage ratio is projected to drop to a more reasonable figure, yet
still substantially greater than one.
II. Times Interest Earnings
Just like the cash coverage ratio, AB InBev’s TIE is encouraging. AB InBev’s 2015
TIE indicates that the firm could cover its interest charges 8.3 times on a pretax
earnings basis. Although the firm takes on significant leverage, it does not have an
issue paying off interest expenses.
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Cash Coverage 10.26 5.82 2.46 3.77 4.27 4.32 4.35 4.39 4.44
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Times Interest Earnings 8.30 3.37 1.80 2.97 3.46 3.55 3.60 3.65 3.70
80
Profitability Ratios
I. Gross Profit Margin
AB InBev’s gross profit margin is acceptable. Compared to Molson Coors’ 2015
gross profit margin of 39%, AB InBev reported 69%. This means AB InBev earns 30
more cents on the dollar in gross margin than Molson Coors. A high gross profit margin,
the first level of profitability, indicates AB InBev is an expert at creating a product
compared to competitors.
II. Net Profit Margin
As a result of selling beverages, AB InBev has a low net profit margin. Each unit of
beer sold only produces so much profit. An encouraging fact for investors would be the
fact AB InBev sells a lot of units of beer.
III. Operating Profit Margin
AB InBev reported an operating profit margin of 31% in 2015, or 31 cents in profit for
each dollar in sales. AB InBev’s pro forma indicates a decrease in the operating profit
margin until 2019, when a high margin will return.
IV. Return on Assets
AB InBev’s net profit margin multiplied by its asset turnover gives investors the firm’s
ROA, this can also be calculated using net income divided by total assets. AB InBev’s
ROA is a low percentage and can be attributed to the large amount of assets the
company manages.
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Gross Profit Margin 69% 65% 66% 67% 68% 68% 69% 70% 70%
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Net Profit Margin 19% 3% 3% 10% 14% 15% 17% 18% 19%
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
Operating Profit Margin 31% 19% 26% 30% 32% 33% 34% 34% 35%
Historical Projected
Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023
ROA 6% 1% 1% 3% 3% 4% 4% 4% 4%
81
Historical and Pro Forma DuPont Analysis
AB InBev’s reported ROE in 2015 was 20%. The firm’s pro forma predicts a significant
decrease in net profit margin in 2017 resulting in an abnormal ROE of 4%. A decrease
in net income is a result of the decrease in the net profit margin, this is a result of sales
not outperforming expenses. It is predicted that the firm’s ROE will recover in a time
horizon of 10 years to 23%. If investors require a firm that they can invest in short term,
they should avoid AB InBev. On the contrary investors who seek a long term investment
might find AB InBev as a viable account.
Historical and Pro Forma Altman’s Z-Score Analysis
The Z-score proves to be volatile when using the most recent full year of data, the next
full year projection and a horizon year in 2025. In the most recent full year, the z score
shows the company being in slight financial distress. With a company the size of AB
InBev that has a z score of 2.0524, the slight financial distress shown from a z score
calculation is less worrisome than it would be for a company with less financial
leverage. The market value of equity is a dominating factor in the first year. The
percentage is so high that it makes up for the lack of weight in the z score calculation.
The large debt issuance cut the equity to liabilities by over 92%. The other parts of the z
score equation had much smaller changes from the end of the first year of data to the
end of the first full projection year. This meant that the z score was going to drop
significantly. The z score of 1.1038 shows very serious financial distress but it is
artificially low due to the large debt issuance. For the horizon year, the z score
increased very slightly, still showing financial distress. The large amount of debt that
was issued in order to purchase SAB Miller is still a dominating factor in the z score
equation. An increase in the retained earnings to total assets ratio does help to offset
this large amount of debt.
12/31/2015 12/31/2017 12/31/2025
Net Profit Margin 0.19 0.03 0.21
x Asset Turnover 0.32 0.24 0.22
x Leverage Ratio 3.20 6.28 4.88
Return on Equity 20% 4% 23%
82
Cash Flow Valuation
83
Table of Contents
Cash Flow Valuation
Topic Page #
Executive Summary of Cash Flow Valuation 83
Entity Value 84
Alternative Present Value (APV) 85
Modified Free Cash Flow to Equity (FCFE) 87
Analysis of Cash Flow Valuation 90
84
Executive Summary of Cash Flow Valuation
*All Data is current as of AB InBev’s 3rd quarter financials of 2016 aside from specifically
specified stock prices
Valuation Method Entity Value APV Modified FCFE
Value of Op. Assets $ 275,639,800,000 $ 244,722,471,238 $ 323,629,847,832
Value of Non-Op. Assets $ 95,179,000,000 $ 95,179,000,000 $ 95,179,000,000
Value of the Firm $ 370,818,800,000 $ 339,901,471,238 $ 418,808,847,832
Interest Bearing Debt $ 108,563,000,000 $ 108,563,000,000 $ 108,563,000,000
Minority Interest $ - $ - $ -
Preferred Stock $ - $ - $ -
Value of Equity $ 262,255,800,000 $ 231,338,471,238 $ 310,245,847,832
Value of a Share $ 163.09 $ 143.87 $ 192.94
Shares Outstanding 1,608,000,000
Date 1/1/2016 6/1/2016 11/11/2016
AB InBev Stock Price $ 124.75 $ 129.03 $ 107.80
The new 59-billion-dollar corporate debt issuances during Q3 of 2016 hyper-inflates the free
cash flows to equity holders as well as the overall 2016 cash flows from operations.
Additionally, there is a 49-billion-dollar change in net working capital due to a large increase
in cash and cash equivalents. Including these one-time-items gives us a significantly high
FCFE for 2016. Throughout the course of the next decade, AB InBev will decrease its level of
cash and cash equivalents in order to fund shortages in liabilities and owners-equity (pay off
short term debt). This decrease in net working capital will be offset from an equal increase in
debt repayments (a negative account). Another item to consider is the overall positive level of
growth rates from 2018 onward, leveling at 3%. These could potentially be negative in
regards to the acquisition of SAB Miller yielding an ROIC that falls short of the company’s
WACC.
85
Entity Value
The entity value of a firm is a measure of AB InBev’s total company value, used as an
alternative to equity market capitalization. The market capitalization of AB InBev is its
share price multiplied by the number of shares outstanding, plus its debt, minus its
cash. In this scenario, the minority interest and preferred equity is effectively zero.
The current market value of equity is derived from a recorded share price of $107.80 on
November 11th, 2016. At this moment in time AB InBev recorded 1,606,000,000 shares
of stock outstanding. The total debt is a sum total calculation of the book value of
current long term and short term debt.
This firm valuation method is useful to quickly calculate AB InBev’s value. However, it
does not provide the most accurate projection of AB InBev’s firm value, and in fact
overvalues the firm due to its abnormal degree of debt leverage. This is explained further
in the analysis section for cash flow valuation.
MV of Equity Debt Cash EV
$ 173,126,800,000 $ 108,563,000,000 $ 6,050,000,000 $ 275,639,800,000
86
Alternative Present Value (APV)
AB InBev’s APV is the net present value (NPV) of the company’s operating cash flows
(Op. CF) if financed solely by equity plus the present value (PV) of any financing
benefits, which are the additional effects of debt. The only financing effect that AB InBev
currently experiences is the interest tax savings from its corporate bond issuances.
*All APV data is represented in Millions
Period 0 1 2 3 4 5 6
Growth Rate -2% 5.30% 3.80% 3.30% 3.10% 3%
2016 2017 2018 2019 2020 2021 2022
Op. CF $ 13,073 $ 12,812 $ 13,491 $ 14,003 $ 14,465 $ 14,914 $ 15,361
HV $ 267,150
Annual Interest Tax Savings $ 1,607
PV of Interest Tax Savings $ 7,565
NPV of Op. CF $ 244,722
*All data used for the APV calculation above is derived from the values listed below
10-Year Treasury Rate as of Sep 30th, 2016 1.60%
Current Market Risk Premium 4%
Current Beta 1.19
Current Cost of Equity (CAPM Model) 6.36%
Historical Cost of Equity 8.75%
Tax Rate 20.00%
Interest on Total Debt 7.40%
Current Debt 108,563
87
In calculating AB InBev’s APV, the historical cost of equity is used opposed to its current
cost of equity. The current cost of equity fails to capture an accurate representation of
what the cost of equity will be in the future when used to discount cash flows from the
company’s future operations.
A tax rate of 20% was used to calculate the APV. This corporate tax rate is consistent
throughout this analysis of AB InBev’s intrinsic valuation. 20% is the 10-year historical
tax rate the company uses in its current/historical financial statements, and thus
provides the most accurate data.
The interest on debt of 7.40% is the average annual coupon payment the company is
expected to makes on its 108-billion-dollar corporate debt.
A non-constant growth model is used to project the company’s growth in Op. CF’s. As a
result, -2% is used to project the 2017 decline in Op. CF’s, this number is negative
because of recent acquisition in 2016 of SAB Miller, and assumes that it will take over a
year to effectively organize the companies supply line to streamline all products at the
most profitable level. After this year, the company is expected to experience growth
rates between 3-5% which eventually plateau to a constant growth level of 3%. This is
the exact growth behavior the company experienced after announcing the taking over of
Modelo in 2012.
The APV model solves for a net present value of 237-billion-dollars by discounting the
Op. CF’s at 8.75% (historical cost of equity).
The interest tax savings is calculated by multiplying the tax rate by the current amount
of debt by the interest on said debt (20%*7.8%* 108B). This results in an annual interest
tax savings of 1.6-billion-dollars. The PV of this financing benefit over a period of 6-
years (years tell a steady growth state) discounted at the cost of debt presents a value
of 7.6-billion-dollars. This PV of 7.6-billion is added to the NPV of Op. CF’s of 237B to
calculate an APV of 244.7-billion-dollars.
The APV calculation is by far the best method for calculating the value of this company,
by presenting the most accurate data outputs. This is explained further in the analysis
section for cash flow valuation.
88
Modified Free Cash Flow to Equity (FCFE)
AB InBev’s free cash flow to equity (FCFE) is a measure of how much cash can be paid
to equity holders of the company after all expenses, reinvestments and debt are paid.
FCFE = Net Income + Depreciation – Change in Net Working Capital + New Debt - Debt Repayment
The FCFE is projected forward at the growth rate of sales until the growth is a constant
state and then discounts the cash flows at the cost of equity producing an accurate
NPV.
*All APV data is represented in Millions
*All data used for the FCFE calculation above is derived from the values listed below
Financials 2016
NI 7,113.33 DEP 16,377.00 CAP EXP (5,084.02) Change in NWC (46,727.00) New Debt 59,097.00 Principal Repayment of Debt - FCFE 30,776.31
FCFE decreases a substantial amount from 2016 to 2017. This decline is a result of the
assumption that years seceding 2016 won’t have new debt issuances or changes in net
working capital of the same magnitude that 2016 did.
Period 0 1 2 3 4 5 6 Growth Rate -2% 5.30% 3.80% 3.30% 3.10% 3%
2016 2017 2018 2019 2020 2021 2022
FCFE $ 30,776 $18,038
$18,994
$19,716
$20,367
$20,998 $ 21,628
HV $376,138
NPV $323,630
89
Net Income (NI) was calculated from the current 2016 Q3 NI of 5.335-billion amounting
75% of the current years NI. That number divided by three represents the company’s
average NI for one quarter in 2016 (1.778-billion-dollars). The average quarterly NI was
then multiplied by four to represent the full years’ worth of NI (7.113-billion-dollars).
Using a historical depreciation calculation as well as the company MARCS depreciation
table for is larger capital assets, the pro forma deprecation was calculated by taking the
company’s current 2016 deprecation and adding the projected 2016 Q4 deprecation.
Capital expenses for 2016 were calculated the same as NI for 2016, by calculating 2016
quarter averages and then multiplying that amount by four to arrive at a total annual
amount.
Change in net working capital (Change in NWC) for 2016 is considered an outlier when
compared to the company’s averages for change in NWC. The unusual increase is the
outcome of an increase in cash and cash equivalents by 889.02%
Year 2013 2014 2015 2016
CA $ 18,690 $ 18,541 $ 18,294 $ 74,433 CL $ 17,775 $ 19,719 $ 22,531 $ 27,706 NWC $ 915 $ (1,178) $ (4,237) $ 46,727
Change in NWC $50,964.00
Year 2015 Q3 2016
Cash and MS $ 6,978.00 $ 62,032.00
Growth 889.0%
AB InBev issued new corporate debt in 2016 (second largest corporate debt issuance in
history) to finance the accusation of SAB Miller, thus inflating 2016 levels of new debt
issuances to a level the company has never experienced before. No principal debt was
repaid.
90
Year 2015 2016 New Debt
Total Debt $ 49,466 $ 108,563 $ 59,097
FCFE is not the best method to calculate the value of the company, because of 2016’s
one-time-events, and irregular predictions of sales growth. This is explained further in
the analysis section for cash flow valuation.
91
Analysis of Cash Flow Valuation
The APV model is the most efficient for analyzing an accurate firm value of AB InBev
and gives the most accurate intrinsic stock price calculation. However, the calculated
intrinsic price is a larger price then the current stock price as of 11/11/2016. The Pro
Forma intrinsic price projects a 10% larger price then where the price was at the
beginning of 2016. The new 59-billion-dollar corporate debt issuances during Q3 of
2016 hyper-inflates the free cash flows to equity holders in 2016 giving the impression
that the company has a larger debt level then it historically ever has. The 49-billion-
dollar change in net working capital due to a large increase in cash and cash
equivalents has a similar outlier effect as the new debt issuance. Including these one-
time-items gives us an extremely high FCFE for 2016. The value of Non-op. assets is
pulled directly from the companies reports to date for the year 2015, and is aligned with
historical levels. Another item to consider is the overall positive level of growth rates
from 2018 onward, leveling at 3%. These could potentially be negative in regards to the
acquisition of SAB Miller yielding an ROIC that falls short of the company’s WACC.
Valuation Method Entity Value APV Modified FCFE
Value of Op. Assets $ 275,639,800,000 $ 244,722,471,238 $ 323,629,847,832
Value of Non-Op. Assets $ 95,179,000,000 $ 95,179,000,000 $ 95,179,000,000
Value of the Firm $ 370,818,800,000 $ 339,901,471,238 $ 418,808,847,832
Interest Bearing Debt $ 108,563,000,000 $ 108,563,000,000 $ 108,563,000,000
Minority Interest $ - $ - $ -
Preferred Stock $ - $ - $ -
Value of Equity $ 262,255,800,000 $ 231,338,471,238 $ 310,245,847,832
Value of a Share $ 163.09 $ 143.87 $ 192.94
Shares Outstanding 1,608,000,000
The above prices show an overestimate of the current stock price of 107.80
(11/11/2016). This discrepancy is the result of generous growth projections, and one-
time-items appearing on the financial statements as a result of the recent accusation of
SAB Miller as explained in the paragraphs above.
92
Multiples Valuation
Analysis
93
Table of Contents Multiples Valuation Analysis
Topic Page #
Executive Summary 93
Relative Multiples Valuation Analysis 94
Relative Multiples Analysis vs. Comparable Companies 95
Relative Multiples Analysis vs. Comparable Index’s 96
AB InBev Intrinsic Price Calculations 96
In-depth Multiples Analysis 97
Market & Industry Multiple Analysis 100
94
Executive Summary of Multiples Valuation Analysis
AB InBev has slight
value discrepancies in
ratios due to current
levels of volatility
resulting from, but not
limited to, the recent
acquisition of SAB
Miller, current geo-
political uncertainty
and higher levels of
LT/ST debt than the
company has ever
experienced before.
This multiple analysis leads to one of two conclusions:
1.) When compared to other brewing companies making up the global beverages-
brewers industry, AB InBev is over-valued. However, this leaves out an important
factor, AB InBev is immensely larger then almost all of the companies that make up
the global beverages-brewers industry. Thus, leading to higher price multiple ratios.
2.) AB InBev is fairly valued and deserves to have higher price multiples because of
its size and recent external growth (acquisitions) as well as its high level of goodwill
as reported on the balance sheet.
23.30
1.19
4.30 6.40
15.20 17.90
24.90
0.662.51
4.41
14.42
30.91
19.90
0.69 2.312.99
14.54
22.90
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Forward P/E Ratio Current Beta Price to Sales Price to Book Price to CashFlows
Price to Free CashFlows
AB InBev Group Comparisons
AB InBev BUD Average of Comparabel Companies Median of Comparabel Companies
AB InBev Comparable
Price of $107.08
Forward P/E
Ratio
Price to
Sales
Price to
Book
Price to
Cash Flows
Price to
Free Cash Flows
AB InBev (Multiples) 23.30
4.30
6.40
15.20
17.90
Current Value
(Over/Under as compared to
Global Beverages-Brewers index) Under Over Over Over Under
95
Relative (Multiples) Valuation Analysis
Our valuation analysis of AB InBev’s multiples is aligned with what that of many wall street analysts’ predict, including that of beverage sector expert Philip Gorham, CFA, FRM. AB InBev is currently experiencing greater than average volatility due to the recent acquisition of SAB Miller pushing the firm to make the second largest corporate debt issuance in the history of the firm. Additionally, current geopolitical uncertainty resulting from U.S. presidential elections, and the dovish attitude of the U.S. FED. Philip Gorham states “heightened levels of uncertainty could create attractive buying opportunities for long-term investors interested in building a position in competitively advantaged global consumer names. That being said, investors must be aware of short- and potentially longer-term changes across the broader consumer sector. First, while unlikely to be sustained, we recognize that erratic changes in foreign currency rates are likely to have a near-term impact, particularly for firms with exposure to Mexico (with the peso trading at all-time lows against the U.S. dollar).” This is important to consider for properly valuating AB InBev’s Latin American operations. Overall our multiple analysis shows slight value discrepancies when comparing the company’s financials to that of other companies/index’s both inside and outside the market sector.
*Data Current as of November 11th, 2016*
96
Relative Multiples Analysis vs. Comparable Companies
Stock Price as of (11/11/2016): $107.80
AB InBev & Comparable Companies (Valuation Ratios)
Company Ticker
Forward P/E Ratio
Current Beta
Price to Sales
Price to Book
Price to Cash Flows
Price to Free Cash Flows
AB InBev BUD 23.30 1.19 4.30 6.40
15.20
17.90
Molson Coors TAP 16.90 0.89 5.93 2.15
24.40
35.25
Boston Beer SAM 26.10 0.66 2.50 4.81
16.60
28.01
Coca Cola KO 20.40 0.80 4.23 6.79
20.28
27.99
Pepsi PEP 19.90 0.69 2.44 11.80
14.54
20.04
Dr Pepper Snapple Group DPS 17.40 0.67
2.43 7.12
16.31
21.15
Carlsberg A/S CABGY 2.70 1.09
1.40 1.94
7.70
12.64
United Breweries CCU 15.80 0.52 1.61 2.33
11.20
100.32
Heineken HEINY 10.70 1.02 2.00 2.99
11.65
23.11
Suntory Beverage & Food STBFY 35.40 0.26
0.96 2.80
9.10 N/A
Tsingtao Brewery TSGTY 84.40 0.86
1.40 2.10
15.90 N/A
China Resources Beer CRHKY 19.70 0.16
1.11 3.50
10.50 N/A
Brick Brewing BIBLF 31.00 (0.25)
2.31 2.63
14.02
22.68
Average N/A 24.90 0.66 2.51 4.41 14.42 30.91
Std. Dev N/A 19.71 0.40 1.47 2.90 4.58 25.16
Median N/A 19.90 0.69 2.31 2.99 14.54 22.90
97
Relative Multiples Analysis vs. Comparable Index’s
AB InBev Comparable
Price of $107.08
Forward P/E
Ratio
Current Beta
Price to
Sales
Price to
Book
Price to Cash Flows
Price to Free Cash Flows
AB InBev (Multiples)
23.30 1.19 4.30 6.40 15.20 17.90
S&P 500 24.90 1.00 1.91 2.88 N/A N/A
Global Beverages-
Brewers 23.75 0.54 1.88 2.15 13.79 21.69
Global Beverages- Soft
Drinks 23.60 0.42 1.41 2.70 11.60 22.40
AB InBev Intrinsic Price Calculations
AB InBev Comparable Price
of $107.08
Forward P/E
Ratio Current
Beta Price to Sales
Price to
Book
Price to Cash Flows
Price to Free Cash Flows
AB InBev (Multiples) 23.30 1.19 4.30 6.40 15.20 17.90
Intrinsic Price (As Compared to
Average) $115.20 N/A $62.91 $74.31 $102.23 $186.14
Intrinsic Price (As Compared to
Median) $92.07 N/A $57.91 $50.36 $103.12 $137.88
Intrinsic Price (As Compared to Global
Beverages- Brewers Index) $109.88 N/A $47.13 $36.21 $97.80 $130.62
Current Value (Over/Under as
compared to Global Beverages-Brewers
Index) Under N/A Over Over Over Under
EPS Beta RPS BVPS CFPS FCFPS
AB InBev 4.63 1.19 25.07 16.84 7.09 6.02
98
In-depth Multiples Analysis
AB InBev has a current forward P/E Ratio that sits at a fair to slightly lower level than
what many professional analysts believe it should be at. Our Analysts predict that its
current P/E ratio is espicially fair valued, differing only from the Global Beverages-
Brewers Index (AB Inbev’s most comparable index) by 1.85%.
AB InBev’s most current beta is well above the current average form similar companies.
This is a result of the company’s current levels of volatility resulting from but not limited
to; the recent acquisition of SAB Miller, current geopolitical uncertainty, and higher
levels of long term and short term debt then the company has ever experienced.
23.30 16.90
26.10 20.40 19.90 17.40
2.70
15.80 10.70
35.40
84.40
19.70
31.00
- 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00
Forward P/E Ratio
1.19
0.89
0.66 0.80
0.69 0.67
1.09
0.52
1.02
0.26
0.86
0.16
(0.25) (0.40)
(0.20)
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
Comparable Betas
99
AB InBev’s price to sales ratio is considerably greater then (1.88) that of the Global
Beverages-Brewers Index, and all but one of its comparable competitors. This is a result
of a more generous market valuation due to the company’s increasing external growth,
and size compared to other competitors in the market.
AB InBev’s greater than average price to book ratio when compared to the above list of
similar companies, as well as its grater then average ratio compared to (2.15) of the
Global Beverages-Brewers Index, is a result of generous market valuation based on the
company’s size and recent external growth.
4.30
5.93
2.50
4.23
2.44 2.43
1.40 1.61 2.00
0.96 1.40
1.11
2.31
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Price to Sales
6.40
2.15
4.81
6.79
11.80
7.12
1.94 2.33 2.99 2.80
2.10 3.50
2.63
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Price to Book
100
AB InBev’s price to cash flow ratio is at moderate to median level within the industry
average, and compared to Global Beverages-Brewers Index ratio of (13.79). This shows
us that the company’s revenue per share as compared to its price per share is within
the acceptable industry level, and being valued at the most realistic multiple level when
compared to other price multiples.
AB InBev’s price to free cash flow ratio is again shown at a lower to medium level when
compared against similar companies and the Global Beverages-Brewers Index ratio of
(21.69). This ratio is lower than company historical averages and is expected to
continue to decrease, because of the recent corporate debt issuances, specifically the
issuance to fund the accusation of SAB Miller.
15.20
24.40
16.60
20.28
14.54 16.31
7.70 11.20 11.65
9.10
15.90
10.50 14.02
-
5.00
10.00
15.00
20.00
25.00
30.00
Price to Cash Flows
17.90
35.25 28.01 27.99
20.04 21.15 12.64
100.32
23.11
- - -
22.68
-
20.00
40.00
60.00
80.00
100.00
120.00
Price to Free Cash Flows
101
Market & Industry Multiple Analysis
In the above listed multiples ratios, one can note that AB InBev’s intrinsic value varies
based off the use of different price multiple ratios. The company’s stock price and
intrinsic value is derived from many internal and external factors. Including but not
limited to future company expectations of sales growth and external growth through
acquisitions. Over all, this multiple analysis leads to one of two conclusions. First being
when compared to other brewing companies making up the Global Beverages-Brewers,
AB Inbev is over-valued. However, this leaves out an important factor, AB InBev is
immensely larger then almost all of the companies that make up the Global Beverages-
Brewers. Thus, leading to higher price multiple ratios. Second, AB InBev is fairly valued
and deserves to have higher price multiples because of its size and recent external
growth (accusations) as well as its high level of goodwill as reported on the balance
sheet.
23.30
1.19
4.30 6.40
15.20 17.90
24.90
0.662.51
4.41
14.42
30.91
19.90
0.69 2.312.99
14.54
22.90
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Forward P/E Ratio Current Beta Price to Sales Price to Book Price to Cash Flows Price to Free CashFlows
AB InBev Group Comparisons
AB InBev BUD Average of Comparabel Companies Median of Comparabel Companies
23.30
1.19 4.30 6.40
15.20 17.90
24.90
1.00
1.91 2.88
- -
23.75
0.54 1.88
2.15
13.79
21.69
23.60
0.42 1.41
2.70
11.60
22.40
-
5.00
10.00
15.00
20.00
25.00
30.00
Forward P/E Ratio Current Beta Price to Sales Price to Book Price to Cash Flows Price to Free CashFlows
AB InBev vs Benchmarks
AB InBev BUD S&P 500 N/A Global Beverages-Brewers N/A Global Beverages- Soft Drinks N/A
102
Valuation Summary &
Conclusion
103
Table of Contents Valuation Summary & Conclusion
Topic Page #
Introduction to Summary 103
Cash Flow Methods 103
Summary & Analysis of Cash Flow Valuation 104
Summary of Multiple Analysis 105
Final Conclusion 106
104
AB InBev Valuation Summary and Conclusion
The following is the final intrinsic valuation of AB InBev using different cash flow
methods, and multiples analysis. The projected stock prices from these valuation tools
are to be used as estimates for the intrinsic valuation of AB InBev’s stock price. The
modernity of the data used will be presented above all data tables, graphs and charts to
allow for further accuracy in computing the intrinsic valuation of AB InBev.
Cash Flow Methods
*Data in the table below is current as of AB InBev’s 3rd quarter financials of 2016 aside from specifically
specified and dated historical stock prices
Valuation Method Entity Value APV Modified FCFE
Value of Op. Assets $ 275,639,800,000 $ 244,722,471,238 $ 323,629,847,832
Value of Non-Op. Assets $ 95,179,000,000 $ 95,179,000,000 $ 95,179,000,000
Value of the Firm $ 370,818,800,000 $ 339,901,471,238 $ 418,808,847,832
Interest Bearing Debt $ 108,563,000,000 $ 108,563,000,000 $ 108,563,000,000
Minority Interest $ - $ - $ -
Preferred Stock $ - $ - $ -
Value of Equity $ 262,255,800,000 $ 231,338,471,238 $ 310,245,847,832
Value of a Share $ 163.09 $ 143.87 $ 192.94
Shares Outstanding 1,608,000,000
Date 1/1/2016 6/1/2016 11/11/2016
AB InBev Stock Price $ 124.75 $ 129.03 $ 107.80
105
Summary and Analysis of Cash Flow Valuation
In calculating the most accurate intrinsic value of AB InBev’s firm value and stock price
the APV model provides the best data outputs for arriving at a fair value and intrinsic
stock price by solving for the net present value (NPV) of the company’s operating cash
flows (Op. CF) if financed solely by equity, adding the present value (PV) of any
financing benefits, which are the additional effects of debt. This valuation method led an
intrinsic stock price of $143.87, compared to three separate actual stock prices
calculated at specified dates throughout 2016. With the closest and most comparable
actual stock price falling just $14.84 below or 11.5% below the intrinsic stock price
calculated by the APV method. When analyzing this intrinsic value of AB InBev it’s
important to take into account that the overall positive level of growth rates from 2018
onward, leveling at 3%. These growth rates could potentially be negative in regards
complications with the acquisition of SAB Miller potentially yielding an ROIC that falls
short of the company’s WACC, changing the overall NPV of the Op. CF’s and lowering
the intrinsic stock price. While this outcome is unlikely, it is possible and has to be
accounted for and mentioned in the analysis of the company’s intrinsic value.
When calculating the intrinsic value of the firm from the Entity Valuation method the
stated market value of equity is derived from a recorded share price of $107.80 on
November 11th, 2016 when there were 1,606,000,000 shares of stock outstanding. The
total debt is a sum total calculation of the BV of current long term and short term debt
amounting to 108-billion-dollars. This firm valuation method is useful to quickly calculate
a company’s value. However, it does not provide the most accurate projection of AB
InBev’s firm value, and in fact over-values the firm due to its extreme degree of debt
leverage.
FCFE is a measure of how much cash can be paid to equity holders of the company
after all expenses, reinvestments and debt are paid. The FCFE is projected forward at
the growth rate of sales tell a constant state and then discounted at the cost of equity
presenting a NPV. This despite being more in depth and data rich does not provide an
accurate intrinsic value for AB InBev. This method over-value the firm by a far greater
magnitude then the EV and APV methods. If this method was used exclusively, it would
lead one to believe the company is under-valued by a magnitude of 80%. Much of this
value discrepancy is a result of one-time-items inflating the value of FCFE by large
amounts deriving from the new debt issued for the SAB Miller accusation, and change
in NWC.
106
Summary of the Multiple Analysis
The following data tables and graphs provide the best depiction of AB InBev’s valuation
through price multiples and present an intrinsic stock price from said multiples.
* Data in tables and graphs below current as of November 11th, 2016
AB InBev Comparable Price
of $107.08
Forward P/E
Ratio Current
Beta Price to Sales
Price to
Book
Price to Cash Flows
Price to Free Cash Flows
AB InBev (Multiples) 23.30 1.19 4.30 6.40 15.20 17.90
Intrinsic Price (As Compared to
Average) $115.20 N/A $62.91 $74.31 $102.23 $186.14
Intrinsic Price (As Compared to
Median) $92.07 N/A $57.91 $50.36 $103.12 $137.88
Intrinsic Price (As Compared to Global Beverages-
Brewers Index) $109.88 N/A $47.13 $36.21 $97.80 $130.62
23.30
1.19
4.30 6.40
15.20 17.90
24.90
0.662.51
4.41
14.42
30.91
19.90
0.69 2.312.99
14.54
22.90
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
Forward P/E Ratio Current Beta Price to Sales Price to Book Price to CashFlows
Price to Free CashFlows
AB InBev Group Comparisons
AB InBev BUD Average of Comparabel Companies Median of Comparabel Companies
107
Current Value (Over/Under as
compared to Global Beverages-Brewers
Index) Under N/A Over Over Over Under
Final Conclusion
When combining the analysis of AB InBev’s cash flows, price multiples, and analyst
reports, the company is fairly valued. Using only one method to value the intrinsic stock
price of the company leads to an incorrect valuation of where the company currently sits
from a general financial stand point, but when combining all analysis methods to create
a clear picture of the company’s value, it proves that the market has dictated the true
correct value of the company.
108
Appendix & Excel
Sheets
109
CONDENSED SHEETS
110
111
PROJECTED SHEETS
112
113
WACC ESTIMATES
114
HISTORICAL RATIO SHEETS
115
116
Bibliography
117
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