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Task 4 - Template - Revised

The document provides an investment recommendation for Worldwide Brewing regarding its potential bid for HappyHour Co. In 3 sentences: A supply chain interruption at HappyHour Co. is expected to have minimal short-term financial impact and not be a material long-term issue. Bidding for HappyHour Co. is anticipated to be highly competitive. While the company's valuation has been revised down slightly due to short-term revenue impacts, the recommendation is to still pursue the investment opportunity within the revised price range.

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721 views

Task 4 - Template - Revised

The document provides an investment recommendation for Worldwide Brewing regarding its potential bid for HappyHour Co. In 3 sentences: A supply chain interruption at HappyHour Co. is expected to have minimal short-term financial impact and not be a material long-term issue. Bidding for HappyHour Co. is anticipated to be highly competitive. While the company's valuation has been revised down slightly due to short-term revenue impacts, the recommendation is to still pursue the investment opportunity within the revised price range.

Uploaded by

Naturally
Copyright
© © All Rights Reserved
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Download as PPTX, PDF, TXT or read online on Scribd
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Provide an investment recommendation

Email to management

Dear Management Team,

Financial Impact of Supply chain Interruption


-Minimal financial Impact in short-term given it has had minimal effect on the financial projection in the years following FY21.
Therefore, we do not see this as a strong reason to significally lower your bid nor is it an indication of future financial distress.
-Given the long term natureof this investment and the intangiable (synery value) of this investment we do not see this fire as a material issue either.

Bidding Dynamics

-The information regarding bidding on HappyHour Co. from the NY/HK times to be credible.Due to several Large strategic firms searching for opportunities to expand we
can expect a highly competitive bidding environment.
-If Worldwide Brewing is expecting to extract higher value from synergiesthan some of the bidding competitors, this leaves an opportunity to pay a higher price

Valuation Adjustment
-FY21 Revenue of $1,100mm(down 4-5%)
-50% gross margin
-Management excepts to revert to originally forecasted sales in FY22 and thereafter
This has resulted in revised NPV $738mm from $803mm, an equity value of $654mm from $718mm and offer share price of 329 cents from 361 Cents

Net present value based on perpetuity growth method


Preliminary valuation Revised valuation (post-fire)
Value Based on 8.5% WACC & 0.5% TGR Amount ($m) % of NPV Amount % of
Value Based on 8.5% WACC & 0.5% TGR
Present Value of Cash flows 409 50.9% ($m) NPV
PV of Terminal Value 394 49.1% Present Value of Cashflows 345 46.7%
Implied Firm NPV  803 100.0% PV of Terminal Value 394 53.3%
Net debt as of Mar-20E (85) Implied Firm NPV   738 100.0%
Implied equity value  718   Net debt & adjustments (85)
Implied offer share price (c) 361 Implied equity value   654  
% premium to current 118.8%
Implied share price ($c) 329
% premium to current 99.1%
Source: Company Business Plan (January 2020); Equity research; J.P. Morgan analysis

WORLDWIDE BREWING 1

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