NYSE: STZ
Kunjan Chikhlikar
Santosh Ragi
Business
• Producer and marketer of alcoholic beverages
• Headquarters: New York
• Consolidated company:
– Barton Beers & Brands
– Canandaiga Wine Company
– Franciscan Estates
– Matthew Clark
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Industry Analysis
• Likely to grow 1% to 1.5% in earnings next year
• Industry diversifying geographically and by product line
• High barriers to entry
• Players (in order of Market Capitalization)
– Diageo Plc
• Diversified (UDV, Pillsbury, Burger King)
– LVMH
• Seller of prestigious & expensive wines
– Brown-Forman Corp.
• Weak outlook
– Constellation Brands
• Concentrates only on alcoholic beverages
Strategy
• Price-value
– Good value for price
– Less dependent on market factors
• Diversification
– Over 200 products
– Geographical diversification
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Strategy (cont.)
• Targeted market
– Everybody carrying a 21 year “ID”
– Recently entered the expensive wine market
• Acquisitions
– Updates its portfolio through acquisition of well-known brands
– No expenditure on product development
– Recent acquisitions include Ravenswood Winery, Corus Brands
Inc.
Barton Beers and Brands
• Products
– Tsingtao, Corona, Double Diamond
Black Velvet Canadian Whiskey,
Barton Vodka
• Revenue Share: 42.5%
• Features
– #1 Beer importer in the United States
– 4th largest spirits company
– “Cash cow”
3
Matthew Clark
• Products
– Cidermaster, Copperhead, Paul Masson,
Strathmore
• Revenue Share: 27.6%
• Features
– Step towards international diversification
– Exports to more than 50 countries
– #1 wine importer in the United Kingdom
– Expected 35% increase in sales in organic
products
Canandaigua Company
• Products
– Paul Masson, Coastal Vintners,
Estate Cellars, Cook’s
• Revenue Share: 26.5%
• Features
– 2nd largest producer of wine in the
United States
– Heritage wines
– Recent acquisitions
4
Franciscan Estates
• Estates
– Franciscan Oakville Estate
– Ravenswood Winery
• Revenue Share: 3.4%
• Features
– Entering expensive wine market
– Quality estate wines
– Last year’s net income grew by 93%
– Forecasted sales growth of 49% due to
acquisitions
Fundamentals
• Recent Price: $39.80
• 52-Week High: $46.50
• 52-Week Low: $23.50
• Market Capitalization:
$1.84B
• Shares Outstanding:
43.4M
• Earnings: $2.60
5
Income Statement
Proportionate increase in Revenues, Expenses & Net income
Balance Sheet
Heavy long term debts, High inventories & Other Assets
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Statements of Cash Flows
Ratio Analysis Cbrands LVMH Diageo Brown Forman
P/E 15.15 30.55 19.68 18.37
Dividend - - - 2.16
Beta 0.68 1.5 0.33 0.39
Solvency and Risk Ratios
Quick Ratio 0.67 0.39 0.72 0.66
Current Ratio 2.03 1.11 1.03 1.79
LTD/Equity 1.53 0.72 0.77 0.03
Interest Coverage 2.67 x x 24.47
Profitability Ratios
Operating Margin 11.8 14.27 14.61 16.8
Net Profit Margin 4.42 6.31 10.19 10.44
Return on Assets 4.36 3.33 7.71 11.95
Return on Equity 16.2 9.05 24.44 20.13
Efficiency Ratios
Asset Turnover 0.99 0.53 0.76 1.15
Revenue/Employee 512K 215K 308K 383K
Receivable Turnover 6.95 8.75 3.83 7.49
Inventory Turnover 2.49 1.26 1.8
More value to the share holders, LTD/Equity
7
Valuation
Value = Next Year EPS / (WACC-Growth Rate)
61.8 = 2.64/(0.0577 – 0.015)
How did we get these numbers?
Discount Factor (WACC)
Cost of Debt = 0.082 or 8.2%
(i.e. the highest interest paid on a long-term loan)
Cost of Equity = Risk-free Rate + Beta * Risk Premium
= 0.043 + 0.68*0.06
= 0.0838
WACC = Cost of Debt*(1-T) + Cost of Equity
= (0.754*0.082) (1-0.4) + (0.246*0.0838)
= 0.0371 + 0.026
= 0.0577
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Earnings and Growth Rate
Earnings for 2002 = $2.6 (1.015)
= $2.64 Per share
Growth rate = 0.015
Industry growth rate is 1.5%
Valuation
Value = Next Year Earnings / (WACC-Growth Rate)
$61.80 = 2.6(1.015)/(0.577-0.015)
• Why isn’t the market reflecting this value?
• The risk involved in the long-term debt
• No dividends but Good operating Cash Flow
• Small & new company
• Low volume of trade (308K shares traded every day)
• Market factors: “Weak market sentiment or confidence”
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Why should it be in our portfolio?
• Diversified
• Undervalued
• Small Company establishing itself
• Not effected by economic shock
Thank You
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