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Case Study Calaveras

Case Study Calaveras

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Published by Ada Sabic

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Published by: Ada Sabic on May 19, 2011
Copyright:Attribution Non-commercial

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07/09/2013

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Calaveras Vineyards
Company Valuation
Gavrilenco NicolaeSabic AdaSaric Amela
 
Page | 2
1.
 
Company Overview
Calaveras Vineyard was originally established in 1883 as a family-owned business, since when itexpanded to production of table wines to retailers and restaurants. Moreover, their products arecategorized into 3 main quality categories in which 5 product categories can be found:Figure1 Product CategorizationThroughout the years, the company had changes in the ownership structure, but alsoimprovements in the brand quality and market position through major capital improvements andupgrading of machinery, which lead to an increase in the average wholesale price. The mainstrategy from 1987 was broadening the company’s position on premium brand category, whichwas successful. The new strategy consists of recruiting the West-Coast marketer Winston Fendall,who will provide them a strong mechanism to secure cash flow position due to the payingarrangement between those two companies.We based our further analysis of the company on set of assumptions including the historical andforecasted data in which an
optimistic sales trend 
is included. Moreover, sales are forecasted togrow on average 9% over next five years due to the assumption of increase in demand for wineproducts, increase in real prices and increase in production per ton of grapes and yield per acre.(Figure 1 and Figure 2) The preferences of the US population are expected to shift towards a moreconsumption of wine, meaning that it is expected that the market will grow at a higher rate thanthe increase in prices within the market. Based on these assumptions the forecast shows us thatsome of the product groups will generate sales in a significantly increasing amount whereas otherof the product groups will have a smaller share of the sale.Selected vineard wines
 
Estate wines
 
California wines
 
Secial-accounts
 
Generic wines
 
Medium-quality products
 
High-quality productsLower-quality products
 
Super-premium category
 
Selected-vineyard-programs
 
Special-programs
 
 
Page | 3
1.1
 
S.W.O.T Analysis
STRENGHTS:
Company with long traditionStrong brand positionVariety of products categoryDifferentiated and strong distributionchannelSkilled and experienced management andowners
WEAKNESSES:
Limitation of sales volumeUnstable COGSThe cost per unit of product is unstableand the revenues (profit) are harder topredictSupplier relationshipsThe long average processing time of finalproduction
OPPORTUNITIES:
Strategy towards increase in prices andutilization of low-quality productsStrong position in the higher qualityproducts categoryIncrease of sales in supermarkets withvolume remained unchangedNew marketing strategyStrong mechanism to secure cash flowposition by the marketing companyImprovements of quality and capitalNation-wide demand increase for winesExpansion towards international sales
THREATS:
Strong competition in the higher qualityproducts categoryCash flow limitation for coveringexpensesSupplies of grapes depends on manyfactors, therefore unpredictableLimitations in capacity
 2.
 
Calaveras Vineyard Valuation
The quantitative analysis of market value estimation of the company we started by using the
 DCF model
, and in order to obtain the continuous value we are using the
value driver model
.Furthermore, we estimated WACC for a long-term horizon and included the risk free ratecorresponding to the interest rate of 30 years T-bond. (Table 1) Therefore, we also incorporatedthe geometric mean for market risk premium in order to exclude autocorrelation in returns. But,the main concerns in this estimation are regarding the comparison of Calaveras with thecompetitors (Canandaigua, Finn&Sawyer, and Frogg's Jump), which brought us to the conclusionthat they are not optimal comparable companies since they significantly differ in market strategyand even more important in the amount of sales. Consequently, we divided our products into 3product lines and computed their shares in our sales, which we then multiplied with the respective

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