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Samuel Adams %281%29
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Transcript of Samuel Adams %281%29
Group 4
Jose Aleman
Andrew Fulham
Scott Sorensen
Stephanie Soybel
Taylor Williams
Boston Beer Company
Recommendation
We value Boston Beer Company (NYSE: SAM) at $63.38 per share, and recommend that investors hold these securities.Current Market Price of $65.21Increased competition will hinder revenue
growth and company expansion Market Growth within Industry Stagnation
Overview
Financials
Strategy
Valuation
Agenda
Boston Beer Company History
Overview Financials Strategy Valuation
• Jim Koch founds Boston Beer1984
• IPO at $20 per share1995
• Twisted Tea launched2001
• Sam Adams Light launched2002
• Purchase of PA brewery2007
• Product recall in April2008
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Boston Beer FeelsCompetition from All Sides
Imports Wine & Spirits
Craft Beers Industry Leaders
Overview Financials Strategy Valuation
Consolidation ofDomestic Beer Production
Boston Beer Company 1%
AB InBev 50%
Miller-Coors29%
Other 20%
Domestic Beer Production
Source: www.ibisworld.com
Overview Financials Strategy Valuation
Domestic Beer Production is Decreasing
2001 2002 2003 2004 2005 2006 2007 2008 2009$188
$190
$192
$194
$196
$198
$200
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
Total Domestic Beer Production
Produced% change
Source: www.ibisworld.com
Overview Financials Strategy Valuation
Craft, Import, and Specialty Beer
20% of Domestic Beer Market
Category profitability realized by Major Brewers
Samuel Adams is the largest domestic brewer and 3rd largest Brewer in the Better Beer Category
Boston Beer operates within the “Better Beer” category
Overview Financials Strategy Valuation
Craft Beer experienced 12%
growth in 2009
6th Straight year this category has outperformed the
Beer Industry
Major Craft Beers: • Sam Adams• Sierra Nevada• New Belgium
Craft Beer drinkers are loyal to the Craft Beer
Industry
Craft Beer: Growth within Stagnation
Overview Financials Strategy Valuation
Top Selling US Craft Beers in 2009
1) Sierra Nevada Pale Ale
2) Samuel Adams Boston Lager
3) Sam Adams Seasonal
4) New Belgium Fat Tire Amber Ale
5) Shiner Bock
6) Widmer Hefeweizen
7) Sam Adams Variety Pack
8) Sam Adams Lite
Boston Beer sells 2 of the top 3 Craft Beers
Source: Beverage Industry Magazine
Overview Financials Strategy Valuation
3 Tier Distribution System
Brewery Wholesalers Retailers
Overview Financials Strategy Valuation
Boston Beer Co. (SAM)
8 Flavored Malt Beverages
(13%) 20 Unique Beers (87%)1 Hard Cider (0.06%)
Diverse Product Portfolio
Overview Financials Strategy Valuation
Current Market Analysis
Current Consumer Base
• Specific Market Segment
• “Beer Lovers”• Quality over
price
Strengths
• Niche Market• Highly Trained
Sales force• Brand
Differentiation
Overview Financials Strategy Valuation
Market Opportunities and Risk
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014$0
$50
$100
$150
$200
$250
$300
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Advertising Expenditures
Advertising Expense
As % of Revenue
Overview Financials Strategy Valuation
Overview
Financials
Strategy
Valuation
2005-2009 CAGR of 14.5%
Growth rate slowed to almost zero in 2009
2005 2006 2007 2008 2009$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
$400.00
$450.00
$500.00
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Revenue
Revenue
Rev Growth
Historical Revenue Growth
Overview Financials Strategy Valuation
Projected revenue growth at 14%
Projected Revenue
2010 2011 2012 2013 2014$0.00
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
$700.00
$800.00
$900.00
$1,000.00
10.00%
10.50%
11.00%
11.50%
12.00%
12.50%
13.00%
13.50%
14.00%
14.50%
Projected Revenue
RevenueRevenue Growth
Overview Financials Strategy Valuation
Establishment of a new brewery allowed Boston Beer to decrease its production costs slightly
In the future, Boston Beer is not expected to further reduce costs by more than 2%
Cost of Goods Sold
Overview Financials Strategy Valuation
2005 2006 2007 2008 20090.00
50.00
100.00
150.00
200.00
250.00
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
Cost of Goods Sold
COGS
COGS as % of Revenue
Industry Average
Financial Analysis
• Can finance its own capital expenditures
• ABInbev:12.55%• SABMiller:10.6%
Net profit margin of 7.5% in 2009
Boston Beer has no short or long term debt
Financial Analysis
Source: Global Business Browser
Overview Financials Strategy Valuation
Overview
Financials
Strategy
Valuation
Overview Financials Strategy Valuation
Competitive Strengths
Consumer preferences are shifting towards premium beer
Leadership built on scale, quality and branding
Agreements with suppliers and distributors yield stability and predictability.
Threats
Increasingly competitive segmentLow switching costs among consumersIntensified efforts from industry leaders to
penetrate the marketLow barriers to entry at the microbrewer
level Need to increase differentiation from
premium products in wine and spirits industry
Overview Financials Strategy Valuation
Opportunities
Geographic expansionDomesticInternational – Emerging markets
RisksDirect competition with regional brewersCompetition with major industry leaders
Product diversification
Overview Financials Strategy Valuation
Overview
Financials
Strategy
Valuation
Discounted Cashflow Analysis
Base Case 2010 2011 2012 2013 2014
Total Revenue $480.69 $547.99 $624.71 $ 712.17 $811.87
Cost of Revenue, Total 217.09 247.48 282.13 321.63 366.65
Gross Profit 263.61 300.51 342.58 390.55 445.22
Income After Tax 45.04 51.34 58.53 66.73 76.07Depreciation 10.19 11.62 13.25 15.10 17.21
ΔNWC 7.27 8.29 9.45 10.77 12.28Discounted Cashflow $44.08 $46.19 $48.40 $50.71 $53.13
Perpetuity Growth 3.5%
Terminal Value
$657.57
Enterprise Value
$900.07 Debt to Equity Ratio 0Equity Value per Share $63.38 Current Market Value $65.21
Overview Financials Strategy Valuation
Best and Worst Cases
Base Optimistic Pessimistic
Revenue Growth Rate 14% 16% 12%
COGS % of Revenue 42% 41% 43%
Perpetuity Growth Rate 3.5% 4% 3%
Equity Value per Share $63.38 $77.07 $52.54
Current Market Value $65.21
Overview Financials Strategy Valuation
Sensitivity Analysis
Overview Financials Strategy Valuation
COGS as % of RevenueAdvertising Expenses as % of Revenue
Revenue Growth Rate$45.00
$50.00
$55.00
$60.00
$65.00
$70.00
$75.00
$80.00
Sensitivity Analysis of Equity Value per Share
-10 Pct +10 Pct
Eq
uit
y V
alu
e p
er
Sh
are
Sensitivity Analysis
5.00% 7.00% 9.00% 11.00% 13.00% 15.00%$41.00$46.00$51.00$56.00$61.00$66.00$71.00$76.00$81.00$86.00$91.00
Discount Rate vs Equity Value per Share
Discount Rate
Eq
uit
y V
alu
e p
er S
har
e
Overview Financials Strategy Valuation
Recommendation
We value Boston Beer Company (NYSE: SAM) at $63.38 per share, and recommend that investors hold these securities.Current Market Price of $65.21Increased competition will hinder company
expansion Market Growth within Industry Stagnation
Appendices
Five Forces Summary•S
table and predictable
Suppliers
•Pressure to differentiate
Customers
•High threat, moderate barriers
New entrants
•Craft beer is not wine
Substitutes
•Secure niche market
Competition
Larger Competition
AB InbevShock TopColorado NativeRedhook
MillerCoors produces several craft beers Blue MoonHenry WeinhardLeinenkugel
Assumptions
Revenue Growth Rate 14%
Recalls 0
COGS % of Revenue 42%
SG&A 8%
Income Tax 44%
Excise Taxes -7.0%
Advertisement Expense 28%
Perpetuity Growth 3.5%
β 0.80
Risk Premium 6%
30-Year Bond Rate 4.00%
Discount Rate 8.80%
Income Statement 2005-2014
Year Ending (December)(in Millions) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Gross Revenue 263.3 315.3 380.6 449.6 453.4 516.9 589.2 671.7 765.8 873.0
Sales Returns and Allowances 0.0 0.0 0.0 -13.2 0.0 0.0 0.0 0.0 0.0 0.0
Excise Tax Receipts -25.0 -29.8 -38.9 -37.9 -38.4 -36.2 -41.2 -47.0 -53.6 -61.1
Revenue 238.3 285.4 341.6 398.4 415.1 480.7 548.0 624.7 712.2 811.9
Total Revenue 238.3 285.4 341.6 398.4 415.1 480.7 548.0 624.7 712.2 811.9
Cost of Revenue 96.8 121.2 152.3 214.5 201.2 217.1 247.5 282.1 321.6 366.7
Cost of Revenue, Total 96.8 121.2 152.3 214.5 201.2 217.1 247.5 282.1 321.6 366.7
Gross Profit 141.5 164.3 189.4 183.9 213.8 263.6 300.5 342.6 390.5 445.2
Selling/General/Administrative Expense 17.3 22.7 24.6 35.0 36.9 41.4 47.1 53.7 61.3 69.8
Advertising Expense 100.9 113.7 124.5 132.9 121.6 144.7 165.0 188.1 214.4 244.4
Total Selling/General/Administrative Expenses 118.2 136.3 149.0 167.9 158.5 186.1 212.1 241.8 275.7 314.3
Impairment-Assets Held for Use 0.0 0.0 3.4 1.9 1.0 0.0 0.0 0.0 0.0 0.0
Unusual Expense (Income) 0.0 0.0 3.4 1.9 1.0 0.0 0.0 0.0 0.0 0.0
Total Operating Expense +COGS 215.0 257.5 304.8 384.3 360.8 403.2 459.6 524.0 597.3 680.9
Operating Income 23.3 28.0 36.9 14.1 54.3 77.5 88.4 100.8 114.9 130.9
Interest Income - Non-Operating 1.8 3.1 4.3 1.6 0.1 2.5 2.8 3.2 3.7 4.2
Interest/Investment Income - Non-Operating 1.8 3.1 4.3 1.6 0.1 2.5 2.8 3.2 3.7 4.2
Interest Income (Expense) - Net Non-Operating Total 1.8 3.1 4.3 1.6 0.1 2.5 2.8 3.2 3.7 4.2
Other Non-Operating Income (Expense) 0.4 0.7 0.5 0.2 0.0 0.4 0.5 0.5 0.6 0.7
Other, Net 0.4 0.7 0.5 0.2 0.0 0.4 0.5 0.5 0.6 0.7
Income Before Tax 25.5 31.8 41.6 15.8 54.4 80.4 91.7 104.5 119.2 135.8
Total Income Tax 10.0 13.6 19.2 7.8 23.2 35.4 40.3 46.0 52.4 59.8
Net Income 15.6 18.2 22.5 8.1 31.1 45.0 51.3 58.5 66.7 76.1
Source: Global Business Browser / Reuters
Balance Sheet 2005-2009
2005 2006 2007 2008 2009Cash and Short Term Investments 63.9 82.4 95.5 9.1 55.5Total Receivables, Net 9.5 17.8 20.1 31.1 22.6Total Inventory 13.6 17 18.1 22.7 25.6Other Current Assets, Total 2 3.4 4.3 6 9.4Total Current Assets 89.2 120.6 137.9 68.9 113Property/Plant/Equipment - Net 26.5 30.7 46.2 147.9 147Other Long Term Assets, Total 3.4 3.2 13.9 3 2.9
Total Assets 119.1 154.5 198 219.8 262.9
Accounts Payable 11.4 17.9 17.7 20.2 25.3Accrued Expenses 15.6 19.6 20.4 23.5 21.4Notes Payable/Short Term Debt 0 0 0 0 0Other Current liabilities, Total 3.4 6.6 44 46.7 54.2Total Current Liabilities 28.7 40.9 60.2 67.1 73.8
Other Liabilities, Total 4.3 5 4.2 12.7 16Total Liabilities 33.1 45.9 64.4 79.7 89.8
Common Stock 0.1 0.1 0.1 0.1 0.1Additional Paid-In Capital 70.8 80.2 88.8 102.7 111.7
Retained Earnings (Accumulated Deficit) 15.6 28.5 44.9 37.7 61.7Other Equity, Total -0.5 -0.2 -0.2 -0.4 -0.4Total Equity 86 108.6 133.6 140 173.2
Total Liabilities & Shareholders’ Equity 119.1 154.5 198 219.8 262.9
Source: Global Business Browser / Reuters
Name Position Board
C. James Koch Chairman Executive
Martin F. Roper President & CEO Executive
William F. Urich CFO & Treasurer Executive
Thomas W. Lance VP, Operations Executive
John C. Geist VP, Sales Executive
David L. Grinnell VP, Brewing Executive
David A. Burwick Class A Director Non-Executive
Pearson C. Cummin, III Class A Director Non-Executive
Charles Joseph Koch Class B Director Non-Executive
Jay Margolis Class B Director Non Executive
Gregg A. Tanner Class B Director Non-Executive
Jean-Michel Valette Class A Director Non-Executive
Key Employees
SWOT
•Strengths• Strong recent financial performance• Robust network of breweries for local
distribution• Diversified in products and geographical
distribution• Strong market position• Expanding market share• Strong growth prospects
•Weaknesses• Much smaller player than most
competitors• Declining profitability• Limited liquidity position• Low return on equity• Product recalls
•Opportunities• Focused strategy on reducing• Dependencies on other brewers• Production expansion• Growing craft beer market
•Threats• Changing consumer preferences• Limitations on advertising• Stringent governmental regulations• Consolidation in beer industry
Financial Ratios
Boston Beer AB Inbev SABMiller Heineken Industry
ROI 15.16% 7.95% 8.36% 9.26% 9.40%
Current Ratio 1.53 0.76 0.65 0.78 1.87
Return on Assets 12.90% 5.20% 5.00% 5.60% 6.19%
Gross Margin 47.10% 54.16% 52.73% 34.36% 44.62%
Source: Global Business Browser
Final Notes
A large amount of information in this presentation was taken from the Boston Beer Company 2009 10k
40
Sensitivity Analysis
40% 42% 44% 46% 48% 50%30
35
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COGS vs. SAM Share Value
COGS (% of Total Revenue)
Eq
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20%
21%
22%
23%
24%
25%
26%
27%
28%
29%
30%
45
50
55
60
65
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75
80
85
90
Advertising vs. SAM Share Value
Advertising Expenses(% of Total Revenue)
Eq
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