Intrinsic value of Compania Cervecerias Unidas ADR - CCU

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$26.70

  Intrinsic Value

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  Value-price divergence*

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CCU stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 5.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.03
  15.40
  14.36
  13.42
  12.58
  11.82
  11.14
  10.53
  9.97
  9.48
  9.03
  8.63
  8.26
  7.94
  7.64
  7.38
  7.14
  6.93
  6.73
  6.56
  6.40
  6.26
  6.14
  6.02
  5.92
  5.83
  5.75
  5.67
  5.60
  5.54
  5.49
Revenue, $m
  2,350
  1,729,121
  1,977,423
  2,242,872
  2,525,062
  2,823,611
  3,138,192
  3,468,549
  3,814,512
  4,176,008
  4,553,067
  4,945,826
  5,354,531
  5,779,534
  6,221,295
  6,680,376
  7,157,440
  7,653,246
  8,168,648
  8,704,592
  9,262,111
  9,842,326
  10,446,444
  11,075,755
  11,731,633
  12,415,537
  13,129,010
  13,873,681
  14,651,267
  15,463,575
  16,312,502
Variable operating expenses, $m
 
  1,473,658
  1,684,079
  1,909,031
  2,148,170
  2,401,172
  2,667,761
  2,947,719
  3,240,902
  3,547,249
  3,866,784
  4,191,294
  4,537,647
  4,897,812
  5,272,178
  5,661,222
  6,065,505
  6,485,671
  6,922,444
  7,376,624
  7,849,089
  8,340,787
  8,852,741
  9,386,044
  9,941,862
  10,521,430
  11,126,056
  11,757,120
  12,416,078
  13,104,461
  13,823,876
Fixed operating expenses, $m
 
  7,410
  7,595
  7,785
  7,979
  8,179
  8,383
  8,593
  8,808
  9,028
  9,254
  9,485
  9,722
  9,965
  10,214
  10,470
  10,731
  11,000
  11,275
  11,557
  11,846
  12,142
  12,445
  12,756
  13,075
  13,402
  13,737
  14,081
  14,433
  14,793
  15,163
Total operating expenses, $m
  2,060
  1,481,068
  1,691,674
  1,916,816
  2,156,149
  2,409,351
  2,676,144
  2,956,312
  3,249,710
  3,556,277
  3,876,038
  4,200,779
  4,547,369
  4,907,777
  5,282,392
  5,671,692
  6,076,236
  6,496,671
  6,933,719
  7,388,181
  7,860,935
  8,352,929
  8,865,186
  9,398,800
  9,954,937
  10,534,832
  11,139,793
  11,771,201
  12,430,511
  13,119,254
  13,839,039
Operating income, $m
  290
  248,054
  285,749
  326,056
  368,912
  414,259
  462,047
  512,237
  564,802
  619,731
  677,029
  745,047
  807,162
  871,757
  938,903
  1,008,685
  1,081,203
  1,156,575
  1,234,930
  1,316,411
  1,401,177
  1,489,398
  1,581,258
  1,676,955
  1,776,696
  1,880,705
  1,989,217
  2,102,480
  2,220,756
  2,344,321
  2,473,463
EBITDA, $m
  290
  356,673
  408,770
  464,473
  523,696
  586,359
  652,392
  721,743
  794,374
  870,270
  949,437
  1,031,905
  1,117,725
  1,206,970
  1,299,738
  1,396,147
  1,496,335
  1,600,463
  1,708,711
  1,821,277
  1,938,379
  2,060,253
  2,187,152
  2,319,348
  2,457,131
  2,600,806
  2,750,700
  2,907,154
  3,070,530
  3,241,208
  3,419,588
Interest expense (income), $m
  26
  14,240
  25,688
  38,112
  51,394
  65,514
  80,452
  96,193
  112,723
  130,034
  148,122
  166,989
  186,641
  207,091
  228,357
  250,461
  273,432
  297,303
  322,111
  347,900
  374,717
  402,614
  431,646
  461,874
  493,362
  526,180
  560,401
  596,100
  633,361
  672,269
  712,914
Earnings before tax, $m
  257
  233,814
  260,062
  287,944
  317,518
  348,745
  381,595
  416,044
  452,079
  489,697
  528,908
  578,059
  620,521
  664,666
  710,546
  758,223
  807,771
  859,272
  912,818
  968,511
  1,026,460
  1,086,784
  1,149,613
  1,215,081
  1,283,334
  1,354,525
  1,428,817
  1,506,380
  1,587,395
  1,672,052
  1,760,549
Tax expense, $m
  46
  63,130
  70,217
  77,745
  85,730
  94,161
  103,031
  112,332
  122,061
  132,218
  142,805
  156,076
  167,541
  179,460
  191,847
  204,720
  218,098
  232,004
  246,461
  261,498
  277,144
  293,432
  310,395
  328,072
  346,500
  365,722
  385,780
  406,723
  428,597
  451,454
  475,348
Net income, $m
  179
  170,684
  189,845
  210,199
  231,788
  254,584
  278,564
  303,712
  330,018
  357,479
  386,103
  421,983
  452,980
  485,206
  518,699
  553,503
  589,673
  627,269
  666,357
  707,013
  749,316
  793,353
  839,217
  887,009
  936,834
  988,803
  1,043,036
  1,099,657
  1,158,798
  1,220,598
  1,285,200

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  214
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,822
  1,865,287
  2,133,143
  2,419,496
  2,723,907
  3,045,966
  3,385,320
  3,741,693
  4,114,900
  4,504,863
  4,911,615
  5,335,303
  5,776,193
  6,234,665
  6,711,214
  7,206,447
  7,721,079
  8,255,929
  8,811,918
  9,390,067
  9,991,490
  10,617,396
  11,269,088
  11,947,956
  12,655,483
  13,393,244
  14,162,902
  14,966,215
  15,805,035
  16,681,310
  17,597,090
Adjusted assets (=assets-cash), $m
  2,608
  1,865,287
  2,133,143
  2,419,496
  2,723,907
  3,045,966
  3,385,320
  3,741,693
  4,114,900
  4,504,863
  4,911,615
  5,335,303
  5,776,193
  6,234,665
  6,711,214
  7,206,447
  7,721,079
  8,255,929
  8,811,918
  9,390,067
  9,991,490
  10,617,396
  11,269,088
  11,947,956
  12,655,483
  13,393,244
  14,162,902
  14,966,215
  15,805,035
  16,681,310
  17,597,090
Revenue / Adjusted assets
  0.901
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
  0.927
Average production assets, $m
  1,353
  1,002,890
  1,146,905
  1,300,866
  1,464,536
  1,637,694
  1,820,151
  2,011,758
  2,212,417
  2,422,085
  2,640,779
  2,868,579
  3,105,628
  3,352,130
  3,608,351
  3,874,618
  4,151,315
  4,438,883
  4,737,816
  5,048,663
  5,372,024
  5,708,549
  6,058,938
  6,423,938
  6,804,347
  7,201,011
  7,614,826
  8,046,735
  8,497,735
  8,968,873
  9,461,251
Working capital, $m
  360
  153,892
  175,991
  199,616
  224,730
  251,301
  279,299
  308,701
  339,492
  371,665
  405,223
  440,179
  476,553
  514,379
  553,695
  594,553
  637,012
  681,139
  727,010
  774,709
  824,328
  875,967
  929,734
  985,742
  1,044,115
  1,104,983
  1,168,482
  1,234,758
  1,303,963
  1,376,258
  1,451,813
Total debt, $m
  262
  246,998
  366,462
  494,175
  629,942
  773,581
  924,933
  1,083,875
  1,250,325
  1,424,249
  1,605,660
  1,794,625
  1,991,262
  2,195,741
  2,408,281
  2,629,155
  2,858,681
  3,097,224
  3,345,196
  3,603,050
  3,871,284
  4,150,439
  4,441,093
  4,743,868
  5,059,426
  5,388,467
  5,731,734
  6,090,012
  6,464,126
  6,854,944
  7,263,382
Total liabilities, $m
  1,198
  831,918
  951,382
  1,079,095
  1,214,862
  1,358,501
  1,509,853
  1,668,795
  1,835,245
  2,009,169
  2,190,580
  2,379,545
  2,576,182
  2,780,661
  2,993,201
  3,214,075
  3,443,601
  3,682,144
  3,930,116
  4,187,970
  4,456,204
  4,735,359
  5,026,013
  5,328,788
  5,644,346
  5,973,387
  6,316,654
  6,674,932
  7,049,046
  7,439,864
  7,848,302
Total equity, $m
  1,624
  1,033,369
  1,181,761
  1,340,401
  1,509,044
  1,687,465
  1,875,467
  2,072,898
  2,279,654
  2,495,694
  2,721,035
  2,955,758
  3,200,011
  3,454,004
  3,718,013
  3,992,372
  4,277,478
  4,573,785
  4,881,803
  5,202,097
  5,535,285
  5,882,038
  6,243,075
  6,619,168
  7,011,138
  7,419,857
  7,846,248
  8,291,283
  8,755,989
  9,241,446
  9,748,788
Total liabilities and equity, $m
  2,822
  1,865,287
  2,133,143
  2,419,496
  2,723,906
  3,045,966
  3,385,320
  3,741,693
  4,114,899
  4,504,863
  4,911,615
  5,335,303
  5,776,193
  6,234,665
  6,711,214
  7,206,447
  7,721,079
  8,255,929
  8,811,919
  9,390,067
  9,991,489
  10,617,397
  11,269,088
  11,947,956
  12,655,484
  13,393,244
  14,162,902
  14,966,215
  15,805,035
  16,681,310
  17,597,090
Debt-to-equity ratio
  0.161
  0.240
  0.310
  0.370
  0.420
  0.460
  0.490
  0.520
  0.550
  0.570
  0.590
  0.610
  0.620
  0.640
  0.650
  0.660
  0.670
  0.680
  0.690
  0.690
  0.700
  0.710
  0.710
  0.720
  0.720
  0.730
  0.730
  0.730
  0.740
  0.740
  0.750
Adjusted equity ratio
  0.548
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  179
  170,684
  189,845
  210,199
  231,788
  254,584
  278,564
  303,712
  330,018
  357,479
  386,103
  421,983
  452,980
  485,206
  518,699
  553,503
  589,673
  627,269
  666,357
  707,013
  749,316
  793,353
  839,217
  887,009
  936,834
  988,803
  1,043,036
  1,099,657
  1,158,798
  1,220,598
  1,285,200
Depreciation, amort., depletion, $m
  0
  108,619
  123,021
  138,417
  154,784
  172,100
  190,345
  209,506
  229,572
  250,539
  272,408
  286,858
  310,563
  335,213
  360,835
  387,462
  415,132
  443,888
  473,782
  504,866
  537,202
  570,855
  605,894
  642,394
  680,435
  720,101
  761,483
  804,674
  849,774
  896,887
  946,125
Funds from operations, $m
  572
  279,303
  312,866
  348,616
  386,572
  426,684
  468,909
  513,218
  559,589
  608,018
  658,511
  708,841
  763,543
  820,419
  879,534
  940,965
  1,004,805
  1,071,157
  1,140,139
  1,211,879
  1,286,518
  1,364,208
  1,445,111
  1,529,403
  1,617,268
  1,708,904
  1,804,519
  1,904,331
  2,008,572
  2,117,485
  2,231,326
Change in working capital, $m
  286
  20,537
  22,099
  23,625
  25,115
  26,571
  27,998
  29,402
  30,791
  32,173
  33,558
  34,956
  36,375
  37,825
  39,317
  40,858
  42,459
  44,127
  45,871
  47,699
  49,619
  51,639
  53,766
  56,009
  58,373
  60,867
  63,499
  66,276
  69,205
  72,295
  75,555
Cash from operations, $m
  286
  264,926
  290,767
  324,991
  361,457
  400,113
  440,912
  483,816
  528,799
  575,845
  624,952
  673,885
  727,168
  782,594
  840,217
  900,107
  962,346
  1,027,030
  1,094,268
  1,164,180
  1,236,899
  1,312,568
  1,391,345
  1,473,394
  1,558,895
  1,648,037
  1,741,020
  1,838,055
  1,939,367
  2,045,190
  2,155,771
Maintenance CAPEX, $m
  0
  -86,978
  -100,289
  -114,691
  -130,087
  -146,454
  -163,769
  -182,015
  -201,176
  -221,242
  -242,208
  -264,078
  -286,858
  -310,563
  -335,213
  -360,835
  -387,462
  -415,132
  -443,888
  -473,782
  -504,866
  -537,202
  -570,855
  -605,894
  -642,394
  -680,435
  -720,101
  -761,483
  -804,674
  -849,774
  -896,887
New CAPEX, $m
  -194
  -133,107
  -144,015
  -153,961
  -163,670
  -173,159
  -182,457
  -191,607
  -200,659
  -209,668
  -218,694
  -227,800
  -237,049
  -246,502
  -256,221
  -266,267
  -276,697
  -287,567
  -298,933
  -310,847
  -323,361
  -336,525
  -350,388
  -365,000
  -380,409
  -396,664
  -413,814
  -431,909
  -451,000
  -471,138
  -492,378
Cash from investing activities, $m
  -234
  -220,085
  -244,304
  -268,652
  -293,757
  -319,613
  -346,226
  -373,622
  -401,835
  -430,910
  -460,902
  -491,878
  -523,907
  -557,065
  -591,434
  -627,102
  -664,159
  -702,699
  -742,821
  -784,629
  -828,227
  -873,727
  -921,243
  -970,894
  -1,022,803
  -1,077,099
  -1,133,915
  -1,193,392
  -1,255,674
  -1,320,912
  -1,389,265
Free cash flow, $m
  52
  44,841
  46,463
  56,340
  67,701
  80,501
  94,685
  110,194
  126,964
  144,935
  164,050
  182,007
  203,262
  225,529
  248,783
  273,005
  298,187
  324,331
  351,447
  379,551
  408,671
  438,841
  470,101
  502,500
  536,092
  570,938
  607,104
  644,663
  683,693
  724,278
  766,506
Issuance/(repayment) of debt, $m
  -7
  110,072
  119,463
  127,713
  135,767
  143,639
  151,352
  158,942
  166,450
  173,924
  181,411
  188,965
  196,637
  204,478
  212,541
  220,874
  229,526
  238,543
  247,971
  257,854
  268,235
  279,154
  290,654
  302,775
  315,557
  329,041
  343,267
  358,278
  374,114
  390,819
  408,438
Issuance/(repurchase) of shares, $m
  -29
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -39
  110,072
  119,463
  127,713
  135,767
  143,639
  151,352
  158,942
  166,450
  173,924
  181,411
  188,965
  196,637
  204,478
  212,541
  220,874
  229,526
  238,543
  247,971
  257,854
  268,235
  279,154
  290,654
  302,775
  315,557
  329,041
  343,267
  358,278
  374,114
  390,819
  408,438
Total cash flow (excl. dividends), $m
  16
  154,913
  165,926
  184,053
  203,468
  224,139
  246,037
  269,136
  293,415
  318,859
  345,461
  370,972
  399,899
  430,008
  461,323
  493,879
  527,713
  562,874
  599,418
  637,405
  676,906
  717,995
  760,756
  805,275
  851,649
  899,979
  950,372
  1,002,941
  1,057,807
  1,115,097
  1,174,943
Retained Cash Flow (-), $m
  -29
  -138,056
  -148,392
  -158,640
  -168,644
  -178,421
  -188,002
  -197,430
  -206,757
  -216,040
  -225,341
  -234,723
  -244,253
  -253,993
  -264,008
  -274,359
  -285,106
  -296,307
  -308,018
  -320,294
  -333,188
  -346,752
  -361,037
  -376,093
  -391,970
  -408,719
  -426,391
  -445,035
  -464,706
  -485,457
  -507,342
Prev. year cash balance distribution, $m
 
  162,503
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  179,360
  17,534
  25,414
  34,824
  45,718
  58,035
  71,706
  86,658
  102,819
  120,120
  136,249
  155,646
  176,014
  197,315
  219,519
  242,607
  266,568
  291,400
  317,111
  343,718
  371,243
  399,719
  429,182
  459,679
  491,260
  523,981
  557,905
  593,101
  629,640
  667,602
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  171,965
  16,052
  22,117
  28,674
  35,437
  42,118
  48,443
  54,163
  59,064
  62,975
  64,702
  66,420
  66,924
  66,242
  64,447
  61,652
  58,001
  53,664
  48,826
  43,676
  38,399
  33,166
  28,129
  23,412
  19,111
  15,287
  11,974
  9,176
  6,873
  5,027
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Compañía Cervecerías Unidas S.A. operates as a beverage company principally in Chile, Argentina, Bolivia, Colombia, Paraguay, and Uruguay. The company operates through Chile, International Business, and Wine segments. It produces and sells alcoholic and non-alcoholic beer under 10 proprietary brands and 5 licensed brands; cider and spirits; and wines. The company also produces and sells non-alcoholic beverages, including carbonated soft drinks, nectars and juices, sports and energy drinks, and ice tea, as well as mineral and purified bottled water. In addition, it manufactures and sells pre-forms, returnable and non-returnable bottles, and caps. Further, the company is involved in the sale and distribution of beer, soft drinks, mineral water, purified water, functional beverages, nectars, wine, pisco, rum, whiskey, vodka, and sweet snacks products. The company serves small and medium sized retail outlets; retail establishments, such as restaurants, hotels, and bars; wholesalers; and supermarket chains. Compañía Cervecerías Unidas S.A. also exports its products to Europe, Latin America, the United States, Canada, Asia, Oceania, and internationally. The company was founded in 1850 and is based in Santiago, Chile. Compañía Cervecerías Unidas S.A. is a subsidiary of Inversiones y Rentas S.A.

FINANCIAL RATIOS  of  Compania Cervecerias Unidas ADR (CCU)

Valuation Ratios
P/E Ratio 55.1
Price to Sales 4.2
Price to Book 6.1
Price to Tangible Book
Price to Cash Flow 34.5
Price to Free Cash Flow 107.2
Growth Rates
Sales Growth Rate 4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.5%
Cap. Spend. - 3 Yr. Gr. Rate 0.6%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 11%
Total Debt to Equity 16.1%
Interest Coverage 11
Management Effectiveness
Return On Assets 7.2%
Ret/ On Assets - 3 Yr. Avg. 7.2%
Return On Total Capital 9.5%
Ret/ On T. Cap. - 3 Yr. Avg. 9.3%
Return On Equity 11.1%
Return On Equity - 3 Yr. Avg. 11.1%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 52.4%
Gross Margin - 3 Yr. Avg. 53.4%
EBITDA Margin 12%
EBITDA Margin - 3 Yr. Avg. 13.4%
Operating Margin 12.3%
Oper. Margin - 3 Yr. Avg. 13.6%
Pre-Tax Margin 10.9%
Pre-Tax Margin - 3 Yr. Avg. 12.2%
Net Profit Margin 7.6%
Net Profit Margin - 3 Yr. Avg. 7.9%
Effective Tax Rate 17.9%
Eff/ Tax Rate - 3 Yr. Avg. 23.9%
Payout Ratio 58.7%

CCU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CCU stock intrinsic value calculation we used $1498372 million for the last fiscal year's total revenue generated by Compania Cervecerias Unidas ADR. The default revenue input number comes from 2016 income statement of Compania Cervecerias Unidas ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CCU stock valuation model: a) initial revenue growth rate of 15.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CCU is calculated based on our internal credit rating of Compania Cervecerias Unidas ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Compania Cervecerias Unidas ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CCU stock the variable cost ratio is equal to 85.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $7229 million in the base year in the intrinsic value calculation for CCU stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 10.4% for Compania Cervecerias Unidas ADR.

Corporate tax rate of 27% is the nominal tax rate for Compania Cervecerias Unidas ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CCU stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CCU are equal to 58%.

Life of production assets of 10 years is the average useful life of capital assets used in Compania Cervecerias Unidas ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CCU is equal to 8.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1057816 million for Compania Cervecerias Unidas ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 188.847 million for Compania Cervecerias Unidas ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Compania Cervecerias Unidas ADR at the current share price and the inputted number of shares is $5.0 billion.


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Stock chart of CCU Financial statements of CCU Annual reports of CCU
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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