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Beverages – Soft Drinks Industry Module 9: Valuation of Equity

Beverages – Soft Drinks Industry Module 9: Valuation of Equity. Megan Morava. Background. World’s largest beverage company License and market 500 nonalcoholic beverage brands Primarily sparkling beverages Coca-Cola, Diet Coke, Fanta , Sprite

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Beverages – Soft Drinks Industry Module 9: Valuation of Equity

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  1. Beverages – Soft Drinks Industry Module 9: Valuation of Equity Megan Morava

  2. Background • World’s largest beverage company • License and market 500 nonalcoholic beverage brands • Primarily sparkling beverages • Coca-Cola, Diet Coke, Fanta, Sprite • Strong brand loyalty and diversified geographical operations offer competitive advantage • Revenues in 2012: $48 billion, 3.17% increase • Acquired CCE’s North American operations in 2010

  3. NFL & Estimated Equity Value

  4. Sensitivity Analysis Sell Buy

  5. Valueline Forecast

  6. Dividend and Earnings Growth Rates Earnings Growth Rate = Dividend Growth Rate =

  7. Implied Forecast from Valueline: Dividend Discount Model

  8. Implied Forecast from Valueline: Residual Earnings Model

  9. Comparison of Equity Value Estimates • From Enterprise Valuation • $29.52 • Analysts’ Forecasts • From Valueline using Discounted Dividend Model • $42.02 • From Valueline using Residual Income Model • $38.33 • Observations from analysts’ forecasts • Firm is in steady state • Analyst estimates of equity value are inflated

  10. Adjusting to Valuation Date • Starting with enterprise value estimate as of December 31, 2013 • Roll forward estimate to March 31, 2014 • VMar 2014 = [VDec 2013*(1+r)3/12] • = [139,549*(1+0.0832) 3/12] • = $142,365

  11. Mid-Year Adjustment • Assume payoffs occur evenly during the year • Multiply estimated value by mid-year adjustment factor (1 + rEnt)0.5 • $142,365*(1+0.0832)0.5= $148,169

  12. Questions?

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