Huaneng Essay

Per capita beer consumption of Peru assumed to triple over 10 year time and matching global standards of 72 litres by utmost year.Income elasticity (0.498) incorpo charge per unitd into model as a lever of gross domestic product Growth ( legate for beer gain potential)This is multiplied with assumed increase of 3x in per capita beer intake to go into at a macro economic proxy of 7.49%We subtract the given honour with CPI Index ( inflation metric) factoring in assumed 5% price growth in beer * Negetive wrong Elasticity( -1.676) arriving at net macro economic proxy= 6.89%CASH full stop GROWTH RATE-IICash flow growth taken as consumption of both fast growing macro economic factors + company unique(predicate) performanceCompany Specific Growth RateHistoric EBITDA growth run given in case =52.4% ( 50.4 mn USD(02) 31.69 mn USD(01) The site is normalized and reduced gradually with power of 5% decrease to arrive at terminal pry growth lay of 2.39%( To account for rising estimat ed contestation locally and South American Brewery industry and unfavourable govt policy)Terminal grade Growth Rate = Function of long term Peru growth rate* Industry Beta Cash flow growth rate arrived for initiatory 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( altogether figures in USD Mln)QUESTION 1(b)Can you think of an alternative way to value Backus based 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.RELATIVE VALUATION -I( Data Source-Exhibit 16)- All figures in USD MlnApproach-1 Price/Sales methodFirst we get the comparable in the southAmerican targets and compute the fairish P/Sales multiple. ( 2.12)We multiply bonny P/S multiplewith Company Sales (137.19) toarrive at market determined FirmValue ( 290.82 U SD Mln)Dividing by follow of generate class Ashares(87.2 mln), we finally arriveat a lot 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 incorrupt RV approach using (EV/EBITDA) & (P/S) Method returning a dissipated value less than that of DCF Method.FIRM VALUE