Boston Beer Company Essay

You atomic number 18 the investment banker assigned with the task of setting the initial public offering price for Boston Beer Company (BBC). Prepare a research circulate to support your recommendation. As you prepare this report, you may find that you would like to assume more field reading than what the case offers you. However, the case contains critical information that gives you a reasonable basis to compute its valuation. In addition rehearse the following information for 1995. 1 Sales ($ millions) Redhook Petes BBC 25. 89 59. 17 151. 31 EPS . 75 . 25 . 40 Book value/ piece of ground 7. 70 4. 33 3. 00 Price 27. 00 24. 75 ?Also, use the following information for BBC for 1996. Make additional assumptions as necessary (and state any additional assumptions) to compute free specie flows for subsequent days 1. The ratio of net profit before taxes to gross sales is 12%. 2. Tax rate is 35% 3. For every dollar of summationd sales BBC go forth increase working swell by 15% (or working capital will increase by $0. 15 for every dollar of increased sales) 4. Capex is 2% of sales 5. Depreciation is 2% of sales 6. BBCs beta is 1. 2. Use BBCs cost of equity as its WACC since its debt is a trivial part of its capital structure.7. Analysts growth forecast for BBC and for the craft brewing atom in ordinary is 30% per year over the next five years. Present the following 1. Overview of the diligence competitive landscape, forebodeed short-term and longterm industry growth, key players in the industry. Summarize the key facts from the case in well-nigh one to both paragraphs. Identify the closest peers to BBC. Also, present as separate compendium of the sexual congress growth of the craft brewing piece. Suppose the craft brewing segment grows at 30% per year for the next five years.What would be the % fortune (as a % of barrels sold) of the craft brewing segment in the beer industry? What would be the % share of the craft brewing segment if this segmen t grows at a 30% per year rate for the next 10 years? How do you expect established players in the market to react if this segment of the market grows at these rates? Some of the information for Petes and Redhook condition below differ from the case. Use the information here in your analysis. 1 2. Business description and a brief history of the ships company. Does the company curb any unique strategic positioning within the industry? mavin paragraph 3. Present a qualitative assessment of the future sentinel for the company. For example, are there any new products in the pipeline? Do you anticipate any competitive threats? Based on these developments, do you expect BBCs growth and profitability to improve deteriorate, or stay about the same as in the past? 4. Revenue Forecasts and Free cash flow forecasts for the next ten years Specifically explain if you are forecasting revenue and FCF growths and profit margins that are significantly different from the companys historical expe rience and wherefore.5. Present a DCF analysis and pin down BBCs intrinsic value. Assume that BBCs Enterprise Value/ NOPLAT will be 18 ten years from now (check for sensitivities by expect a multiple of either 15 or 20). 6. Present a valuation based on valuation ratios (P/B, P/E, P/S) for comparable firms. What price would you recommend based on these valuation ratios? Based on your recommended price, is BBCs P/B ratio bigger or little than that of Redhook? Of Petes? Can you justify this battle? Do the same analysis for P/E and P/S ratios.(Note Suppose a finicky valuation ratio for one firm is 25 and you recommend a corresponding valuation multiple of 35 for BBC. 2 Justify why BBC would command a higher valuation ratio. Justify the direction of the difference (higher or lower) and you do not have to precisely justify why BBCs valuation multiple should be 35 rather than a different number, say 34. ) 7. Recommend an IPO price. 2 The numbers 25 and 35 that I use here are arbitra ry, and I picked them plainly to explain the idea. Dont attach any importance to these peculiar(prenominal) numbers.