Huaneng Essay

Per capita beer consumption of Peru assumed to triple over 10 course of study time and matching global standards of 72 litres by terminal year.Income elasticity (0.498) incorpo rambled into model as a lever of GDP Growth ( proxy for beer growth potential)This is multiplied with assumed increase of 3x in per capita beer intake to arrive at a macro economical proxy of 7.49%We subtract the given lever with CPI Index ( pompousness metric) factoring in assumed 5% price growth in beer * Negetive Price Elasticity( -1.676) arriving at net macro economic proxy= 6.89%CASH give ear GROWTH RATE-II cash in flow growth taken as function of both fast growing macro economic factors + company specific performanceCompany Specific Growth RateHistoric EBITDA growth say given in case =52.4% ( 50.4 mn USD(02) 31.69 mn USD(01) The rate is normalized and reduced gradually with power of 5% decrease to arrive at terminal value growth rate of 2.39%( To account for rising estimated aspiration locally and South American Brewery industry and unfavourable govt policy)Terminal Value Growth Rate = make of long term Peru growth rate* Industry Beta Cash flow growth rate arrived for first 10 years6.89%( Macro-economic proxy)+ 21.6% ( Company specific revenue growth) The arrived growth rate is accounted for a inflation of 2.5% assumed. Final cash flow growth rate used in DCF Model= 25.5%DISCOUNTED CASH FLOW MODEL( All figures in USD Mln)QUESTION 1(b)Can you think of an alternative way to value Backus base on the information of the case?Explain how you would do it, what the value would be and how it would differ from the DCF results. copulation valuation -I( Data Source-Exhibit 16)- All figures in USD MlnApproach-1 Price/Sales MethodFirst we get the comparable conspiracyAmerican targets and compute theaverage P/Sales eight-fold. ( 2.12)We multiply average P/S multiplewith Company Sales (137.19) toarrive at market determined FirmValue ( 290.82 USD Mln)Dividing by estimate of open class Ashares(87.2 mln), we eventually arriveat a Share price of 3.35 USDRELATIVE VALUATION-II( Data Source-Exhibit 16) All figures in USD MlnApproach-2 EV/EBITDA Method First we get the comparable southAmerican targets and compute theaverage EV/Ebitda multiple. ( 11.8)We multiply average EV/EBITDAmultiple with Company EBITDA(50.47) to arrive at marketdetermined Firm Value ( 596.81USD Mln)Dividing by number of open class Ashares(87.2 mln), we finally arriveat a Share price of 6.84 USDRELATIVE VALUATION- A RECAPWe find our authorized RV approach using (EV/EBITDA) & (P/S) Method returning a firm value less than that of DCF Method. loaded VALUE