Corporate valuation: Laurent Perrier analysis

Résumé du document

Laurent Perrier is a French company that specializes in champagne, a luxury product. Laurent Perrier manages both the production and the distribution of its champagnes and wines. The Group owns its distribution network (through restaurants, hotels, bars, retailers and direct sales). This is an advantage for the Group since it helps capture margins, and reduce sales volatility.
Laurent Perrier is considered to have the best growth potential in the beverage sector. The Group tends to export more and more while bottle prices are increasing steadily. The company also has the highest percentage of self-grown grapes on the markets, which allows it to have a strong balance sheet, with an expected decrease of the gearing which is more significant than that of the competitors.
Nowadays Laurent Perrier is considered to be the best group on the champagne market and has the best growth in share price.

Extraits

[...] Laurent Perrier manages both the production and the distribution of its champagnes and wines. The Group owns its distribution network (through restaurants, hotels, bars, retailers and direct sales). This is an advantage for the Group since it helps capture margins, and reduce sales volatility. Laurent Perrier is considered to have the best growth potential in the beverage sector. The Group tends to export more and more while bottle prices are increasing steadily. The company also has the highest percentage of self-grown grapes on the markets, which allows it to have a strong balance sheet, with an expected decrease of the gearing which is more significant than that of the competitors. [...]

[...] DCF based on a 30-years period Assumptions To compute this DCF model, we built a business plan on a 30-years basis, from 2007 to 2037. This business plan is based on SG's estimates and had to be partly reconstructed since the broker did not give details for the 2018e/2033e period. The main assumptions we made are listed below: - The volume of bottles sold increases until 2011 to reach 14.9 million and remains equal to 14.9 for the end of the forecasts since we consider that Laurent Perrier will reach its maximum production capacity then - The bottle price increases regularly over the concerned period, at a rate - The price of grapes has been determined. [...]

[...] With the average unlevered Beta obtained, we computed the levered Beta of Laurent Perrier. The value we obtained equals which is quite odd compared to the one used in the SG note. Indeed, the broker used a 1.15 Beta for Laurent Perrier in its Wacc calculation. These two values are different from the one we found on Bloomberg. Laurent Perrier's Beta is stated at We decided to keep the SG Beta value (i.e ) as we found it relevant, that a company serving the luxury market should overreact to market changes. [...]

[...] Moreover, Laurent Perrier will have to compete against larger firms like LVMH (Moet Hennessy and Chandon). Another solution would be for the legislator to implement new regulations, like increasing the current limit of grape production allowed. However this is not a long term solution. Finally, the last way of increasing the sales volume, after the grape production has reached its limit, would be for Laurent Perrier to diversify its products, like sparkling wines, or wines. Sensitivity to Wacc We have built the sensitivity analysis of the sales volume against sensitivity to Wacc, because, as detailed in our DCF assumptions' section above, the beta we retained (actually, the SG note's one equals to 1.15 ) was much higher than the one calculated by Bloomberg ( 0.651 Computing the Bloomberg Beta would have given us a Wacc of which is very different from the that we and the broker used. [...]

[...] Corporate valuation Laurent Perrier Analysis 1. Content 2. Executive summary Business Overview 4 A. Company's overview 4 B. The Champagne market Valuation of Laurent Perrier 6 A. Net restated asset value method 6 B. Discounted cash flow model DCF based on a 30-years period 6 Assumptions 6 Estimating cost of equity 7 Computing the Wacc DCF with a cash flow fade 8 C. Multiples model 1st Method 2nd Method Sensitivity analysis 10 A. Grape prices 10 B. [...]