Monday, March 21, 2011

Molson Coors Brewing Company: $TAP cash flow valuation

Current Price: ~ $44/share
Projected Yield: ~ 2.59%



I believe Molson Coors Brewing Company ($TAP) is fairly valued at $39/share on a cash flow valuation basis.    


Molson Coors is one of the largest brewers in the world. Major brands include Coors Light, Molson Canadian, Carling, Blue Moon, Killian's, Caffrey's, Worthington's, and Keystone. Its largest markets are Canada (47% of operating profit), the United States (43%), and the United Kingdom (10%). Molson Coors retains 41% share of the Canadian beer market, 30% share of the U.S. beer market (with SABMiller), and 19% share of the U.K. beer market.

I estimated the firm's WACC today at 8.96% using the Capital Asset Pricing Model and the company's recent SEC filings.



Recent free cash flows and noted growth rates:
Year
FCF $Millions
2001
-51
2002
19
2003
304
2004
288
2005
16
2006
387
2007
188
2008
181
2009
700
2010
572

CAGR FCF 2003-2010: approx. 9%
Consensus Forecast Industry 5-Year Growth: approx. 14% per year
Consensus Forecast Company 5-Year Growth: approx. 8% per year

Assuming the company achieves a 5-year growth rate in FCF of 8% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:

Discounted Cash Flow Valuation
Year
FCF $Millions
0
572
1
618
2
667
3
721
4
778
5
840
Terminal Value
10130


The firm's future cash flows, discounted at a WACC of 8.96%, give a present value for the entire firm (Debt + Equity) of $9381 million. If the firm's fair value of debt is estimated at $2138 million, then the fair value of the firm's equity could be $7243 million.  $7243 million / 187 million outstanding shares is approximately $39 per share and a 20% margin of safety is $31/share.

Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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