Consumer Staples Sector Stocks Presentation
David Cody Ying Gao James Mace
Agenda
*  Coca-­‐Cola *  Molson Coors Brewing *  Procter & Gamble *  Sector Recommendation Business Overview
*  Market Cap: 186.9 Billion *  52 Week High/Low: 44.87/36.89 *  Current Price: $42.70 *  Dividend Yield: 2.86% *  Beta: .66 Opportunities and Risks
Opportunities *  Large investment in international growth *  Increased emphasis put on still beverages *  Long-­‐term cost cutting initiatives Risks *  Shifting consumer preference *  Price based competition *  Macro Risk/Potential government regulation Industry Overview and Outlook
Incredibly competitive, capital intensive industry with three main competitors: Coke, Pepsi, Dr. Pepper Snapple *  Coke’s competitive advantages: *
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Efficient distribution channels Large market share Best brand recognition Financial position to move into new markets Performance Analysis
Market Share
Multiple Analysis Price Target
*  Multiple expansion reflects: *  A valuation more in line with current market valuations *  Relatively strong growth potential for Coca-­‐Cola in historical relation to its peers Key DCF Assumptions
Revenue Growth *  Slow revenue growth in the next 3 years—in line with consensus *  Revenue growth picking up in 2018 *  Terminal growth rate of 3.80% Operating Margin *  Increased operating margin over the next several years, especially in 2020 as productivity program is fully implemented Discount Rate *  Relatively low discount rate, 8.25%, reflective of stable demands and efficient management DCF Sensitivity Analysis
Dividend Discount Model
*  Coke has paid a dividend since 1971 *  5 year dividend increase of 8.22% annually *  Model is used to discount future dividends into perpetuity back to present value *  Assumed constant dividend growth rate of 6%, below recent averages, but still quite aggressive Final Price Target
*  Weighted average approach, using three methods *  Weights distributed by the informational intensity of each model *  Final price target of $50.04 Recommendation
*  Coca-­‐Cola is rated a strong “BUY” *  Current Price: 42.70 *  Target Price: 50.04 *  20.05% upside potential: 17.05% from capital gains 3.00% from dividends Company Overview
*  The Molson Coors Brewing Company is a North American brewing company *  Formed in 2005 by the merger of Molson of Canada, and Coors of the United States *  World's seventh largest brewer by volume *  Canada, the U.S., Europe, and MCI Signature brands Coors Light, Molson Canadian, Carling and Staropramen Craft and specialty beers Blue Moon, Creemore Springs, Cobra and Doom Bar.
Stock Overview
TAP: 75.69
SIM position-­‐-­‐ $468,594 4.67% *  Market Cap: 13.99B *  52 Week High/Low: 50.90/77.87 *  Current Price: $75.69 *  Dividend Yield: 2.00% *  Beta: 1.46 *  Target Price: $81.96 Breweries Industry in US
Highly competitive Two largest brewers-­‐ ABI and TAP together represented approximately 80% of the market in 2014 Since 2009, consumers opting for beer over more expensive alcoholic beverages Competitive Advantages
*  Strong Brand Name US -­‐ Coors Light (#2) and Miller Lite (#4) selling
Canada -­‐ Coors Light (#2) and Molson Canadian (#3) selling
Carling -­‐ UK’s #1 selling beer *  constantly focused on innovation *  Brand Portfolio Strategy *  Successful Cost Saving Strategy
Investment Thesis
*  Solid growth in key markets *  Better volume in United States *  based on minimum wage increases, and macros improving
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*
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Generated $102mm in cost savings in 2013 The excise tax on beer is expected to decline
The price of coarse grains is expected to decline Per capita disposable income Per capita expenditure on alcohol DCF Analysis
Molson Coors Brewing (TAP)
Analyst: Ying Gao
2014/11/16
Terminal Discount Rate =
Terminal FCF Growth =
9.0%
4.0%
Year
2014E
2015E
2016E 2017E
2018E
2019E
2020E
2021E 2022E
2023E
2024E
Revenue
4,374
4,462
4,596
4,971
5,120
5,273
5,379
5,541
5,597
% Grow th
Operating Income
Operating Margin
Interest
Interest % of Sales
Taxes
Tax Rate
Net Income
2.0%
1,080
24.7%
% of Sales
Plus/(minus) Changes WC
% of Sales
1,234
4,780
4.0%
1,099
4.0%
1,143
3.0%
1,178
3.0%
1,213
2.0%
1,237
5,486
2.0%
1,262
1.0%
1,275
1.0%
1,287
24.1%
26.9%
23.0%
23.0%
23.0%
23.0%
23.0%
23.0%
23.0%
23.0%
(109)
(98)
(115)
(119)
(124)
(128)
(132)
(134)
(137)
(139)
(140)
-2.5%
-2.2%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
-2.5%
126
127
145
127
132
136
141
143
146
148
149
13.0%
13.0%
13.0%
13.0%
13.0%
13.0%
13.0%
13.0%
13.0%
13.0%
13.0%
846
851
975
852
887
913
941
959
979
988
998
0.5%
14.6%
4.0%
3.0%
3.0%
2.0%
2.0%
1.0%
1.0%
% Grow th
Add Depreciation/Amort
1,074
3.0%
-12.6%
315
326
313
325
338
348
359
366
373
377
381
7.2%
7.3%
6.8%
6.8%
6.8%
6.8%
6.8%
6.8%
6.8%
6.8%
6.8%
-758
32
49
72
50
51
53
0
0
0
0
-17.3%
0.7%
1.1%
1.5%
1.0%
1.0%
1.0%
0.0%
0.0%
0.0%
0.0%
Subtract Cap Ex
-284
-290
-317
-311
-323
-333
-353
-360
-373
-377
-381
Capex % of sales
-6.5%
-6.5%
-6.9%
-6.5%
-6.5%
-6.5%
-6.7%
-6.7%
-6.8%
-6.8%
-6.8%
Free Cash Flow
119
938
951
980
999
965
979
988
998
-8.0%
1.4%
3.0%
1.9%
-3.4%
1.4%
1.0%
1.0%
% Grow th
919
669.3%
1,020
11.0%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
6,228
8,770
14,998
0.86%
16.4
17.7
12.2
13.0
183.0
$ 75.69
$ 81.96
8.3%
3,660
506
2.77
42%
58%
100%
16.3
17.6
12.1
13.0
14.2
15.4
11.0
11.7
Sensitivity Analysis
Key Assumption Sales Growth
3% avg FY14-­‐16
Capex
6.8% of sales
Tax rate
13%
FCF growth
4%
Discount rate 9%
Discount Rate *  Stable and relatively low risk business condition *  Macro economics improving Growth Rate $ 81.96
8.00%
8.25%
8.50%
8.75%
9.00%
9.25%
9.50%
9.75%
10.00%
Sensitivity Analysis of TAP Price to Main Assumption
3.00%
3.25% 3.50% 3.75% 4.00% 4.25% 4.50%
87.6411 90.5133 93.7047 97.2715 101.284 105.832 111.029
83.6287 86.17388 88.987 92.1126 95.606 99.536 103.99
79.9787 82.24494 84.7378 87.4931 90.5545 93.9761 97.8254
76.6438 78.67056 80.8904 83.3321 86.0309 89.0296 92.381
73.5847 75.40455 77.3899 79.5642 81.9561 84.5997 87.537
70.7683 72.40839 74.1911 76.1359 78.2659 80.6089 83.1986
68.1666 69.64976 71.2565 73.0029 74.9081 76.9947
79.29
65.7559 67.10127 68.5543 70.1283 71.8393 73.7058
75.75
63.5157 64.73963 66.0577 67.4813 69.0234 70.6997 72.5284
4.75%
117.026
109.08
102.188
96.1514
90.8199
86.076
81.8269
77.9987
74.5312
*  Potential sales growth in emerging market and European markets sales growth in the future five years Comparative Analysis
TAP
Metric
Est P/E
EV/Est EBITDA
Sales Growth Yoy
EBITDA Margin (%)
ROIC(%)
17.66
12.18
7.39
26.78
6.71
Major Competitiors
Low
High
Avg
14.24
65.44
26.46
7.35
29.51
12.84
-­‐44.27
112.88
7.39
5.68
42.58
19.97
2.18
36.69
10.49
*  TAP is currently trading below the industry average *  EBITDA Margin is significantly higher than the industry average (681 bps higher) *  TAP-­‐ ROE:6.7% ROA:2.1% 150 100 TAP Low High Avg 50 0 -­‐50 -­‐100 Est P/E EV/Est EBITDA Sales EBITDA ROIC(%) Growth Margin (%) Yoy Credit Rating
Risks to Recommendation
*  Consumer Demand and Macroeconomic Shifts *  More beer drinkers to more above-­‐premium beverages *  International Markets Execution *  Dollar value continue goes up *  Increasing Commodity Costs *  Hops, grains, and barley *  Key packaging materials -­‐glass and aluminum. Recommendation
*  Current Price: 75.69 *  Target Price: 81.96 *  10.3% upside potential: 8.3% from capital gains 2.0% from dividends Overview Current Recommendation:
Date of Last Change
Current Price
Target Price
Total Projected Return
Market Capitalization
Diluted Shares Outstanding
Dividend Yield
HOLD
11/17/2014
$87.74
$90.00
2.57%
237,059.9 B
2,888 B
2.84%
Company Description: P&G is a consumer staples sector company who focuses primarily in 4 areas: Beauty, Hair & Personal Care, Baby, Feminine & Family Care, Fabric & Home Care, and Health & Grooming. Located in Cincinnati, OH, P&G has been in operation since 1837. Boasting over $80B in annual sales, Proctor and Gamble (NYSE:PG) sees growth from inorganic avenues as well as emerging market penetration. Brands Competitive Advantage With plans to “cut nearly 100 brands” from its arsenal (Rachel Abrams, NY Times), P&G can focus on more profitable items and strengthen its brand. Valuation Sales & Margins Sales by Segment Beauty Grooming Health Care Fabric Care and Home Care Baby, Feminine, and Family Care Total Consensus FY E2017 $ 22,208 $ 8,059 $ 8,328 $ 26,181 $ 21,714 $ 86,491 $ 91,170 FY E2016 $ 21,354 $ 8,141 $ 8,008 $ 26,446 $ 21,288 $ 85,236 $ 87,510 FY E2015 $ 20,533 $ 8,223 $ 7,700 $ 26,713 $ 20,973 $ 84,142 $ 84,670 FY 2014 $ 19,935 $ 8,306 $ 7,476 $ 26,580 $ 20,766 $ 83,062 FY 2013 $ 19,819 $ 7,432 $ 12,387 $ 26,426 $ 16,516 $ 82,581 FY 2012 $ 19,681 $ 8,201 $ 12,301 $ 26,242 $ 15,581 $ 82,006 FY 2011 $ 19,052 $ 7,939 $ 11,908 $ 25,403 $ 15,083 $ 79,385 FY 2010 $ 18,188 $ 7,579 $ 11,368 $ 24,251 $ 14,399 $ 75,785 Opera0ng Margin by Segment Beauty FY E2017 $ 5,108 FY E2016 $ 4,911 FY E2015 $ 4,517 FY 2014 $ 4,585 FY 2013 $ 4,162 FY 2012 $ 4,330 FY 2011 $ 4,001 FY 2010 $ 3,820 Grooming $ 645 $ 814 $ 1,069 $ 1,412 $ 1,189 $ 1,312 $ 1,270 $ 1,213 Health Care $ 1,333 $ 1,201 $ 1,001 $ 673 $ 2,106 $ 2,091 $ 2,143 $ 2,046 Fabric Care and Home Care Baby, Feminine, and Family Care Total $ 7,331 $ 5,428 $ 19,844 $ 7,140 $ 5,322 $ 19,389 $ 7,212 $ 5,243 $ 19,043 $ 6,911 $ 5,191 $ 18,772 $ 7,135 $ 3,138 $ 17,730 $ 6,823 $ 2,960 $ 17,516 $ 6,605 $ 2,866 $ 16,885 $ 6,305 $ 2,736 $ 16,119 DCF Analysis Recommendation Current Recommendation:
Date of Last Change
Current Price
Target Price
Total Projected Return
Market Capitalization
Diluted Shares Outstanding
Dividend Yield
HOLD
11/17/2014
$87.74
$90.00
2.57%
237,059.9 B
2,888 B
2.84%
Q&A
Thanks!