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Agenda

Agenda. Business Overview Industry Overview SWOT Analysis Macroeconomic Analysis Financial Position Competitor Analysis Multiples Valuation Management Assessment Pro-forma Assumptions DCF Recommendation. Business Overview.

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Agenda

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  1. Agenda • Business Overview • Industry Overview • SWOT Analysis • Macroeconomic Analysis • Financial Position • Competitor Analysis • Multiples Valuation • Management Assessment • Pro-forma Assumptions • DCF • Recommendation

  2. Business Overview Brown-Forman Corporation was founded in 1879 and engages in the manufacture, bottling, import, export, and marketing of alcoholic beverage brands. Sales mainly in the US and Europe. Expanding in Asia, Australia and penetrating the European market even more. • Jack Daniel’s Tennessee Whiskey • Southern Comfort • Finlandia Vodka • Herradura • El Jimador Tequila

  3. Industry Overview • The global alcoholic beverage industry is a multi-billion dollar a year business. • Growing shift away from mature markets in North America and Europe to newer regions such as China, Australia and Russia. • There is a plethora of small producers, however, M&A are very common. There have been four waives of consolidation in the industry: 1950-1960 in UK, 1968-1972 in Europe, 1985-1988 especially in the US and 1998 worldwide. • The industry has been incorporating concerns regarding health-related aspects and social issues in the last two decades • Production is heterogeneous and includes a number of stages

  4. SWOT Analysis • Strengths: • Effective managements with increasing margins and cautious strategy • J.D. is the largest selling whiskey in the world • No shortage in supply. Large number of raw material sources • Threats: • Drinking age regulation • Taxation in liquor • Uncertainty of sales of smaller brands in new markets • Weaknesses: • Exposure to currency risk • High dependence of revenues on JD • Very limited target group of some of the brands SWOT • Opportunities: • Expansion to new markets like China and Australia • Further penetration in the European market • Lower drinking age limitations outside the US

  5. Macroeconomic Analysis Drinking ages around the world

  6. Macroeconomic Analysis Population is expected to increase at a higher rate than in the previous years and the percentage of the younger people will decrease. Population is expected to get older on average and it is possible that brands targeting older people will experience higher demand in the long run.

  7. Macroeconomic Analysis • Corn prices are expected to fall since supply will keep increasing. • The department said U.S. farmers last year produced a record 13.2 billion bushels of corn, up 8.8% from 2008. • 2010 corn estimate is "an astoundingly huge number," said Jack Scoville, VP of Price Futures Group in Chicago. • Wheat prices are pretty low right now due to the large supply and are expected to fall even more in the long run. • Inflation is estimated to stabilize in the short run and slightly increase in the long run. Historical inflation and projections

  8. Macroeconomic Analysis Wheat prices Corn prices

  9. Financial Position • Organic growth • Conservative in expansion • Increasing Efficiency

  10. Profitability

  11. Liquidity

  12. Solvency

  13. Long-term Efficiency

  14. DuPont Analysis

  15. Competitor Analysis • Diageo (DEO), registered in UK • Largest , Mkt Cap $43.94B • Famous brands: Johnnie Walker, Guinness, Bailey, Smirnoff, Hennessy • Fortune Brand (FO), registered in US • Closest competitor, Mkt Cap $8.03B • Famous brand: Jim Beam

  16. Competitor Analysis • Campari (CPR), registered in Italy • Larget in Italy, Mkt Cap $2.2B • Famous brand: SKYY • Pernod (PER), registered in France • Largest in France, Mkt Cap $17.4B • Famous brands: Absolut Vodka, Malibu, Chivas, Ricard • Remy (RMYI), registered in France • Mkt Cap $2.1B • Famous brand: Remy Martin

  17. Multiples Valuation

  18. Management Assessment • Quite accurate most of the times in EPS estimation. • In 2006 : Claimed 3.10 – 3.30  Result 2007 : EPS = 3.26 • In 2007 : Claimed ESP ↓ by 0.2  Result 2008 : EPS ↓ by 0.4 • CAPEX estimation always higher than the realized one. • 2008 : 65-75M  2009 : 49M • 2007 : 70M  2008 : 41M • Good Brand Managers • Diversified portfolio of products.

  19. Assumptions

  20. WACC Calculation

  21. WACC Calculation

  22. Correlations

  23. Recommendation • Based on the fundamental analysis and after incorporate the most significant factors: • DCF Model: $50.25 • Multiples: between $26 to $62 • Recommendation: Watch List

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