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Corporate valuation Laurent Perrier Analysis

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case study
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  1. Business Overview
    1. Company's overview
    2. The Champagne market
  2. Valuation of Laurent Perrier
    1. Net restated asset value method
    2. Discounted cash flow model
    3. Multiples model
  3. Sensitivity analysis
    1. Grape prices
    2. Bottle prices
    3. Growth in sales' volume
    4. Sensitivity to Wacc

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.

[...] Société Générale initiated the coverage of Laurent Perrier with this method because, at that time, it considered that the company was trading at a discount to its floor valuation, and was therefore strongly undervalued. The restated net asset value as of May 2007 pointed out a 81.5 floor share price, against previously. This increase was based on the figures of the acquisition of the Taittinger brand by Credit Agricole. Today the share is trading clearly above the floor price, and the DCF and multiple analysis methods are more relevant. [...]


[...] Valuation of Laurent Perrier To evaluate Laurent Perrier, we used both a DCF method based on the forecasts of Société Générale's, our own assumptions, and a multiples peer comparison method. With respect to our DCF method, we followed two ways of implementation. The first mirrored the method of the broker did. We computed a DCF based on a 30-year period without calculating any terminal value. The second method was a more ?classical? DCF method, based on SG's estimates until 2011 and then decreasing those estimates in a cash flow fade manner, until ROCE equals WACC. [...]


[...] 2nd Method The second method we studied was to calculate our multiples on the basis of SG's estimates for Laurent Perrier in 2007/08 and 2008/09. Thus we obtained a higher share price for the years 2007/08 and 2008/09, which is normal, as these estimates include growth assumptions. However, this method allows more room for approximation as there are hypothesis made for financial results of the coming years Sensitivity analysis Grape prices As we already stated, Champagne is a geographically limited area and the appellation covers almost 34,000 hectares of which more than 95% are planted. [...]

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