MASTER OF BUSINESS ADMINISTRATION

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Assignment: Business and Financial Environment 2

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Assignment: Business and Financial Environment 2

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 KINGSTON UNIVERSITY BUSINESS SCHOOL

Business and Financial Environment 2

Assignment

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Moscow, March 2010

Content

1. Question 1: 3
“The significance of the construction of a new brewery in Samara, Russia”

2. Question 2: 3
“Estimation of the Waited Average Cost of Capital (WACC) for SABMiller (UK) and
Baltika (Russia) on the basis of DVM and CAPM models. Comparisson of results and

1
indication of usefulness of derived WACCs as discount rates for capita investment
decissions”

3. Question 3: 5
“Reflection of the value of SABMiller (UK) and Baltika (Russia) entity across the
share prices”

4. Question 4: 6
“Impact of the global credit crisis on Russian interest rates and the availability of capital.
Innovative and alternative solutions to source company’s finance requirements”

5. References 9

6. Appendices 10

Question 1: “The significance of the construction of a new brewery in Samara, Russia”

The project of the construction of a new brewery in Samara was evaluated. Net Present
Value (NPV) and Internal Rate of Return (IRR) are widely accepted as the most indicative
parameters of an investment appraisal from the time-value-of-money point of view; thus, they
are used in the calculations:
 NPV of the project is equal to 117,489,676 +ve ($);
 IRR of the project is equal to 24.10%.

2
 High positive value of NPV is like a “margin of safety” of the project in case of negative
changes in market environment. IRR of the company (the rate when NPV is equal to zero) is
much higher than the company’s cost of capital including risk premium, which is equal to 18%.
Therefore, it can be concluded that the project is profitable and should be undertaken.
The expected cash flows that are required for the initial construction and the projected
cash flows arising during the first 10 years of operation were indicated, including sell-out the
brewery after 10 years of use. The brewery is planned to function as a mass-market producer
with high volume/low margin characteristics. All the assumptions and calculations have been
summed up in Appendix 1.

Question 2: “Estimation of the Waited Average Cost of Capital (WACC) for SABMiller
(UK) and Baltika (Russia) on the basis of DVM and CAPM models. Comparisson of results
and indication of usefulness of derived WACCs as discount rates for capita investment
decissions”

To illustrate how the Dividend Valuation Model (DVM) and the Capital Asset Pricing
Model (CAPM) can be used in order to calculate the Weighted Average Cost of Capital
(WACC), two companies have been choosen with similar characteristics (same sector) and
operate in different parts of the world (emerging markets versus developed markets).
Baltika Breweries (MICEX: PKBA RX) produces beer, soft drinks, mineral water and
other beverages for the sale of Russia and the CIS region. Baltika Breweries is listed on both
local stock exchanges (Micex and RTS) and operates out of St. Petersburg, Russia. Current
market cap of the company is around 4.7bn US. (Bloomberg: PKBA RX Equity DES)
SAB Miller (LN: SAB LN) is an international beer company. The company bottles and
distributes beer through breweries worldwide. SAB is listed on the London stock exchange and
operates out of London, UK. Similar to Baltika Breweries, SAB also bottles and distributes a
number of soft drinks. Current market capitalization of the company is around 46,5bn USD
(Bloomberg: SAB LN Equity DES)

Table 1. Summary of WACC components derived via DVM and CAPM

3
 In calculating the cost of debt, two methods were used (appendix 2) and the cost of debt
based on the latest bond issues seems to be most accurate. Given that Baltika Breweries mainly
operates in Russia/CIS the premium of 3% in the cost of debt to SAB Miller is due to higher
risks associated with emerging markets. Investors demand a higher yield on their investments in
emerging markets to compensate for higher systematic and unsystematic risks. This difference in
country specific risk is also reflected in the discount of the risk free rate for UK (4,56%) versus
the risk free rate for Russia (6,5%) (appendix 2).
A comparison of Baltika Breweries and SAB based on the cost of equity derived by the
DVM model makes little sense. From 2005 to 2008, Baltika Breweries had a compounded
annual dividend growth rate of 46%. This high growth rate is not sustainable for any company
and has a very strong impact on the cost of equity for Baltika, inflating the figure (Ke = 56.7%).
Its usefulness to derive the company’s cost of equity is therefore questionable. SAB Miller has a
much lower dividend growth rate of around 14%, which can be sustainable in the future and
serves as good input for the DVM in order to calculate WACC.
For the purpose of comparison the CAPM model is used as the results show a more
logical and coherent relationship between the two companies and the markets they are operating
in. In theory, both cost of equity as well as cost of debt should be lower in developed markets
versus emerging markets. Since the cost of equity in the CAPM is positively correlated to the
risk free rate (ceteris paribus), it has to be higher given that the risk free rates in emerging
markets are always at a premium to developed markets. The relationship of higher cost of equity
as well as cost of debt for emerging markets versus developed market is very well established in
the WACC derived by the CAPM. Weighted cost of capital for an emerging market producers
such as Baltika of 15,2% seems reasonable while the WACC for SAB Miller seems a bit too low
at first glance. However, the much lower WACC for SAB Miller might not only be a function of
different costs of capital but of a different capital strucutre. SAB Miller has a gearing ration of
around 50% and seems to have a strong ability to place bonds in the market at relatively
favorable rates. Baltika has currently no bonds outstanding and mainly finances itself through

4
equity capital (debt/equity 0,29). However, if the company would decide to issue bonds and
would be able to issue them at 9% or better, WACC could improve significantly for the
company.

Question 3:“Reflection of the value of SABMiller (UK) and Baltika (Russia) entity across
the share prices”

In order to define to which extent current share price reflects the underlying value of the
two companies, a couple of valuation methods have been applied in order to understand the
relationship of the current share price with the fundamental value of the two companies.1
Table 2. Summary of valuation methods

The current share price of both companies lies well within the range of the various
valuation techniques. With respect to NAV/share, both companies currently trade at around 60%
premium to their respective NAV/share. This on one hand suggests that the market values both
companies similar to each other in terms of the assets they have. On the other hand, a discount of
60% is rather high. The reason for the high discount is that the market does not value these
companies purely based on their assets but investors put more emphasis on the profit these
businesses generate. Therefore, the high discount of NAV/share to the actual share price can be
explained by the absence of profit generation in the NAV/share calculation.
With respect to the P/E multiple of past earnings, Baltika Breweries currently trades at a
32% discount to it’s historic P/E multiple. This implies that investors currently do not believe
that a P/E multiple of 12,56 is a fair assumption of the companies future earning potential. It is
interesting to note that on a historic basis, Baltika Breweries has a P/E of 12,56 versus SAB
Miller of 15.45. A lower P/E multiple implies that a company is relatively cheaper to its peer.
The reason why Baltika should trade at a lower P/E multiples than SAB Miller is due to the fact
that emerging markets take higher risks than developed market investors. These risks such as
political stability, corporate governance, transparency etc. demand that emerging market
companies usually trade at discounts to their developed market peers.

1
Data for share valuation was taken from financial statements for year 2008 as next year financial statements are not
available yet.

5
 The P/E valuation method on future earnings suggests that Baltika Breweries currently
trades at a significant discount to its future earnings. Since the historic P/E ratio has been applied
to calculate the share price valuation it seems that the historical P/E ratio, which was applied is
too optimistic. Again, investors currently do not believe in an earnings growth rate of 15% for
the next 5 years and therefore price the company at a massive discount to its P/E valuation based
on future earnings. With respect to SAB Miller, the stock currently trades only 12% below its
P/E valuation based on future earnings. That implies that a P/E ratio of 15,45 and a growth rate
of 15% for the next 5 years seems reasonable and this is also what investors price into the current
share price.
According to the dividend yield valuation method, Baltika Breweries seems to be fairly
priced at the moment. According to the model, the shares should cost around RUR 1000, which
is only 8% above current market price. With respect to SAB Miller, the shares currently trade at
a 44% premium to its dividend yield value. On this metric, the stock seems overvalued relative
to its fundamental value. The 2,6% dividend yield, which were used in the calculations in
Appendix 3, seems too low and the market currently expects a higher dividend yield in the
future.

Question 4:“Impact of the global credit crisis on Russian interest rates and the availability
of capital. Innovative and alternative solutions to source company’s finance requirements”

The liquidity crunch in Russia, which had its roots in its financial systems dependence on
short-term and overseas capital, raised interest rates to unprecedented levels, making it
impossible for Russian companies to get access to credit. In 2008, the 'Russian corporations and
banks were running up $460 billion in foreign debt' (Krugman, 2009, p 179). Foreign investors
were unwilling to refinance $120 billion falling due in the second half of 2008 and 2009, which
pushed companies to use short term funding from local banks (BCG Moscow, The long-term
perspective to beating Russia's liquidity crunch, n.d). However, due to the risk awareness of
domestic banks and their reliance on foreign capital, interest jumped to levels of around 20% in a
short period of time (Figure 6, Russian short term interest rates MBOR), making it unfeasible for
companies to borrow for even the shortest time period. The high levels of interest rates made it
impossible for russian companies to finance future projects, repay interest on current debt
obligations and finance their operational activity.

6
 Figure 1: Russian short term interest rates MBOR

Source: BCG Moscow

Given the global credit crunch and the local liquidity crisis, Russian banks stopped lending
money for the most part, raising interest rates to record levels (Figure 7, Overall Lending Growth
in Russia). In spring 2008, companies borrowed funds at 10%-14%; by late summer rates
increased to 20%-25%, and by October 2008 companies could not borrow for less than 40%-
50%, if at all. (UniCredit Research, August 2008). The result of the massive increase in interest
rates as well as the inavailability of funds forced companies to freeze their current projects to
protect their cash in order to meet debt obligations as well as to finance operarional expenditures.

Figure 2: Overall Lending Growth in Russia

Source: JP Morgan Equity Research,

Russia
7
 The massive increase of interest rates and the inability of companies to borrow money
from banks made it necessary to revise the companies’ strategies in order to survive and remain
profitable. For being able to source their finance requirements companies had to come up with
innovative and alternative solutions, such as issuing corporate debt at very high interest rate or
issuing preferred shares sweetened by warrants. Many companies in Russia, especially in the Oil
and Gas sector, committed themselves for a certain production volume delivered to specific
countries such as China for example. In return, China would provide loans for these companies
to develop new fields in various regions in Russia. Others source of distressed financing, which
for one part explain the premium investors demand to invest into Russian companies, are
somewhat questionable. For example, the majority shareholder of Sibir Energy used his
company in order to buy his own real estate to help repay loans he personally owed to Sberbank.

8
 5. References

Archbold, Stuart, Carreras, Jarvis, Matthews and Springdal (2004), Business and Financial
Environment (1), Kingston University Business School

BCG Moscow, The long-term perspective to beating Russia's liquidity crunch, retrived March, 2
2010 from http://www.bcg.ru/documents/file21388.pdf

Baltika Breweries (Russia), Annual report, 2006

Baltika Breweries (Russia), Annual report, 2007

Baltika Breweries (Russia), Annual report, 2008

Carreras, A. and Archbold, S., (2006) Business and Financial Environment (2), Kingston
University Business School

Dunhill, A., (2010) BFE 2 Lecture notes & examples

Damodaran, A. (1999) Investment Valuation: Tools and Techniques for Determining the Value
of Any Asset, Moscow, Alpina Business Books

Peshkova, V., (2009) Russian BFE Lectures

Thomas L. West, Jeffrey D. Jones., (2003) Handbook of Business Valuation, Second edition,
Moscow, Kvinto Consulting

Journova E, JP Morgan Equity Research, November 2009, LSR Group, Moscow

Krugman P, 2009, The return of depression economics and the crisis of 2008, W.W. Norton &
Company, Inc, New York

Kochkina A, UniCredit Real Estate Research, August 2008, Turn around in Russian real estate,
Moscow

SAB Millier (UK), Annual report, 2007

SAB Millier (UK), Annual report, 2008

9
10
6. Appendices

Appendix 1
The following assumptions have been done:
 NPV is sum of all the data in discounted cash flow
 IRR is calculated as interpolation from +ve and -ve NPV (until the value appears as zero)
 Discounting cash flow was by the discount rate equal the cost of capital including risk
premium - 18%
 Construction costs do not refer to cash outflows

Appendix 2
Baltika Brewery

Dividend Yield Model

According to the annual report of Baltika Breweries for 2007 and 2008 the following information on dividend
payout on prefered shares as well as common shares has been given
Table 1: Dividends (Source: Baltika Breweries annual report 2008 and 2007)

Excerpt 1: Baltika Breweries annual report 2008 – Share capital

Source: Baltika Breweries annual report 2008

Excerpt 2: Baltika Breweries annual report 2008 - Dividends

Source: Baltika Breweries annual report 2008

Excerpt 3: Baltika Breweries annual report 2007 - Dividends

Source: Baltika Breweries annual report 2007

Valuation of ordinary shares – cost of equity capital

Dividend growth rate (g)

In order to accuartely reflect fluctuating dividend payments between 2006 and 2008, the series of payouts is
taken to calculate the rate of compound, which reflects the growth from the 1st payment to the last payment.
24,33P0(1+g)2 = 52P0 -> 1+g = (52/24.33)0,5 -> 1+g = 1,4619 -> g = 46%
Therefore, the average annual growth rate for dividends, g = 46%

Note that a dividend yield growth of 46% per annum is not sustainable for any company. For this reason, the
dividend valuation model might be inappropriate to use to measure the cost of equity.
Dividend Valuation Model:
ke = d(1+g)/(P-d) + g, where ke is the cost of capital, d is the last dividend payment in 2008, g is the dividend
growth rate and P2 is the share price end of 2008. We receive k e = 52(1+0,46)/(1205-52) + 0,46 -> ke =
56.7%

Valuations of prefered shares – cost of prefered equity capital

In order to value the prefered shares, the following formula is used: k p=Dps/NIP, where kp is the cost of the
prefered share capital, Dps is the dividend on the prefered shares and NIP is the net issuing price of the
prefered shares. According to Excerpt 2, 640,981 ‘000RUR have been allocated to a total of 12,326,470
prefered shares (Excerpt 1). Therefore, kp=640,981/12,326,470 -> kp = 5,2%.

Valuations of debt – cost of debt

Baltika Breweries uses different sources of debt financing from different sources. In order to calculate the
average interest rate, the ratio Interest expenses on borrowings/Average debt is used.

Excerpt 4: Baltika Breweries – Financial income and expenses

Source: Baltika Breweries annual report 2008

Total interest expense on borrowings in the year 2008 was 573,336,000 RUR. According to Table 2 (below)
the average debt is represented by the average of long and short-term borrowings in 2007 and 2008.

Table 2: Sumary table for cost of debt

Source: Baltika Breweries annual report 2008

Therefore, the average long and short-term borrowings [(167.304+580.051) + [(7.562.837+11.171.172)]/2 =

9.740.682 RUR (‘000). The cost of debt (kd) can now be caluclated by dividing the interest expense by the
average long and short-term borrowings. kd=573.336/9.740.682 -> kd=6%
However, the cost of debt calculated this way seems too low when compared to companies with similar
structure and operations. For example Wimb Bill Dann, a Russian diary producer has a similar credit rating
and structure (i.e. they also rely on timley payment of it’s customers, similar operations as producer). The
company issued a bond in 2005 at an interest rate of 9% (Excerpt 5). During 2008 the bond traded at a yield of
around 9%, which implies that investors were pricing the cost of debt for Wimm-Bill-Dann at these levels.

2
Obtained from bloomberg.com, listed on MICEX. Price is as of 12/28/2007 and in RUR
Assuming similar operational structures for Baltika Breweries, a cost of debt of 9% for a Russian corporate
seems to be more reasonable. For this reasons 9% will be used as cost of debt -> kd=9%

Excerpt 5: Wimm-Bill-Dann: RUB bond issued 12/13/05

Source: Bloomberg

Tax rate

Excerpt 6: Baltika Breweries annual report 2008 – Income statement

Source: Baltika Breweries annual report 2008

The tax rate is represented by the ratio between income tax expenses and profit before income tax. Therefore,
4.690.561/20.201.822 yields an applicable tax rate of 23%

Capital weighting of ordinary shares, prefered shares and debt

Excerpt 7: Baltika Breweries annual report 2008 – Balance sheet

Source: Baltika Breweries annual report 2008

Weight of debt = liabilities/liabilities + equity -> Wd = 27,6%

Weight of ordinary shares = equity * 0,923/equities + liabilities -> We = 67%
Weight of prefered shares = equity * 0,084 / equties + liabilities -> Wp = 5,4%

WACC on the basis of DVM

3
Since 92% of total share capital are ordinary shares (Excerpt 1), total equities are multiplied by 0.92 to reflect ths split between
ordinary and prefered shares
4
8% is the part of total share capital with respect to prefered shares (Excerpt 1)
Table 3: Sumary of findings

After all the data has been calculated WACC can be calculated according to the following formula WACC =
kd(1-t)*Wd+ke*We+kps*Wp. Pluggin in all the figures WACC based on DVM yields 39.5%

WACC on the basis of CAPM

Beta – The return of Baltika Brewerie versus the Micex Index

Excerpt 8: Beta for Baltika Breweries - Bloomberg

Source: Bloomberg

According to the BETA model on Bloomberg, Baltika Brweries yields a beta of 0.655 (in the period 12.28.03
to 12.28.08) versus the Micex Index.

Risk free rate – Russian 20 year bonds5

In 2008, the Russian sovereign yield on the 20-year maturity was trading on average at 6.7%. This is used to
determine the RFR for the CAPM model

The formula which is used for the CAPM or the cost of equity capital is k e=(Rm-Rf)*beta + Rf. Where ke is the
expected rate of return or the cost of equity, R m is the market return, Rf the risk free rate and beta the measure
of systematic risk.
Table 5: Sumary of variables

5
Data on yield taken from bloomberg – Russia 20 year sovereign bond
Rm has been approximated. It is the yearly average performance of the Micex index between 2003 and 2008.
This figure is used to estimate future market return. R f is the average yield on Russia 20 sovereign bonds in
2008 and beta has been estimated using bloomberg (see Table 4)

Table 4: Daily closing yield of Russian 30 year sovereign bonds for 2008

Source: Bloomberg

Applying these numbers and the formula ke=(Rm-Rf)*beta + Rf derives a cost of equity of 19,9%

Excerpt 11: New parameters for WACC calculation based on CAPM

According to the following formula WACC = kd(1-t)*Wd+ke*We+kps*Wp, pluggin in all the figures WACC
based on CAPM yields 15,52%

Appendix 2.1

SAB Miller
According to the annual report of SAB Miller for 2007 and 2008 the following information on dividend
payout on prefered shares as well as common shares has been given.

Table 1: SAB Miller annual report 2008 and 2007

Source: SAB Miller annualr report 2008 and 2007

Excerpt 1: SAB Miller annual report 2008 – Share capital

Source: SAB Miller annualr report 2008

Excerpt 2: SAB Miller annual report 2008 – Dividends

Source: SAB Miller annualr report 2008

Excerpt 3: SAB Miller annual report 2007 – Dividends

Source: SAB Miller annualr report 2008

Valuation of ordinary shares – cost of equity capital

Dividend growth rate (g)

Similar to the exercise in the case of Baltika Breweries, in order to calculate a rate of compound, which reflect
dividend growth from 2006 to 2008, the following formula is used
0,39P0(1+g)3 = 0,58P0 -> 1+g = (0,58/0,39)0,33 -> 1+g = 1,13993 -> g = 14%

Dividend Valuation Model:

ke = d(1+g)/(P-d) + g, where ke is the cost of capital, d is the last dividend payment in 2008, g is the dividend
growth rate and P6 is the share price end of 2008. We receive k e = 0,58(1+0,14)/(169,72-0,58) + 0,14-> = ke
14,39%

Valuations of debt – cost of debt

SAB Miller uses different sources of debt financing from different sources. In order to calculate the average
interest rate, the ratio Interest expenses on borrowings/Average debt is used.

Excerpt 4: SAB Miller annual report 2008 – Cash flow statement

Source: SAB Miller annualr report 2008

During 2008, the company paid a total of $m 730 in interest on their outstanding debt obligations. According
to Table 2 (below) the average debt is represented by the average of long and short-term borrowings in 2007
and 2008.

Table 2: Sumary table for cost of debt7

Therefore, the average long and short-term borrowings [(7.596+5.520) + [(2.062+1.711)]/2 = 8.444,5 $m. The
cost of debt (kd) can now be caluclated by dividing the interest expense by the average long and short-term
borrowings. kd=740/8.444,5 -> kd=9%

Again, these calculations yield unsatisfying results as the cost of debt for a company like SAB is usually
lower. The company issued a bond mid 2006 with a coupon of 6,5% and another bond in mid 2008 with a
coupon of 5.7%. Therefore the true cost of debt for the company might lie somewhere in between. For this
reasons 6,1% will be used as cost of debt -> kd=6,1%

6
Obtained from bloomberg.com, listed on London stock exchange. Stock price is taken on the 31.12.2008. Stock was trading at
116.3 GBP, adjusting for USDGBP FX for the same day, the stock closed at $169.72
7
All information in the table have been taken from Excerpt7: Balance sheet SAB Miller
Excerpt 5: SAB Miller corporate bonds issued 2006 and 2008

Source: Bloomberg

Tax rate

Excerpt 6: SAB Miller annual report 2008 – Income statement

Source: SAB Miller annual report 2008

The tax rate is represented by the ratio between income tax expenses and profit before income tax. Therefore,
979/3264 yields an applicable tax rate of 30%
Capital weighting of ordinary shares and debt

Excerpt 7: SAB Miller annual report 2008 – Income statement (1/2)

Source: SAB Miller annual report 2008

Excerpt 7: SAB Miller annual report 2008 – Income statement (1/2)

Source: SAB Miller annual report 2008

Weight of debt = liabilities/liabilities + equity -> Wd = 49,1%

Weight of ordinary shares = equity/equities + liabilities -> We = 50,9%
WACC on the basis of DVM

Table 3: Sumary of findings

According to the data previously collected data, WACC can be calculated based on the following formula:
WACC = kd(1-t)*Wd+ke*We+kps*Wp. Therefore, WACC based on DVM yields 9,42%

WACC on the basis of CAPM

Beta – The return of SAB Miller versus the FTSE 100 Index

Excerpt 8: Beta for SAB Miller – Bloomberg

Source: Bloomberg

According to the BETA model on Bloomberg, SAB Miller yields a beta of 1.012 (in the period 01.02.04 to
12.26.08) versus the FTS 100 index.

RFR – UK 30 Government bonds

In 2008, the UK sovereign yield on the 30-year maturity was trading on average at 4,4%. This is used to
determine the RFR for the CAPM model
Excerpt 9: Daily closing yield of UK 30 year sovereign bonds for 2008

Source: Bloomberg

Same as with the case of Baltika Breweries, the formula for the CAPM or the cost of equity capital is k e=(Rm-
Rf)*beta + Rf. Where ke is the expected rate of return or the cost of equity, R m is the market return, Rf the risk
free rate and beta the measure of systematic risk.

Table 4: Sumary of variables

Again, Rm has been approxiamted by using the yearly performance of the FTSE 100 index over a 5-year
period. RM of 12% implies that over the past 5 years, the FTSE 100 index gained on average 12% per annum
(period 2003 to 2008). Rf is the current yield on UK long-term sovereign debt.
Applying these numbers and the formula ke=(Rm-Rf)*beta + Rf derives a cost of equity of 12,09%

Table 5: New parameters for WACC calculation based on CAPM

According to the following formula WACC = kd(1-t)*Wd+ke*We+kps*Wp, pluggin in all the figures WACC
based on CAPM yields 8,25%
 Appendix 3

Share price valuation methods

Sumary of findings: Baltika Breweries and SAB Miller

Table 1: Sumary of valuation methods

Baltika Breweries

Net Asset Value (NAV) per share

The net asset value is defined as total assets – total liabilities, therefore, NAV = 74,967,826 – 20,690,575
= 54,277,2518 ‘000RUR. End of 2008 the company had 151,714,594 shares outstanding. Therefore,
NAV/share = 357,76

Share valuation according to dividend yield

Annual gross dividend in 2008 was RUR 12,910,929,139.6 (number of shares x dividend / share). Dividend
yield = 85,1/1000 = 0,0851.
Div yield = Div/MV, therefore, 0,0851 = 12,910,929,139.6/MV. MV = 15,171,479,594.4. Hence per share =
1,958,604,000/151,714,796 = 1000.1

Price Earnings Ratio (P/E) for 2008

To calculate the P/E ratios, EPS figures and earning figures for 2007 and 2008 were used from the annual
report.

Table 2: EPS and P/E

Source: Baltika Breweries annual report 2007 and 2008

Given that the company has 151,714,796 shares outstanding. MV = 14,735,937,000*12,56/151,714,796 =

1219 RUR

Future Earnings
Between 2007 and 2008, revenus grew by 15%. Earnings are assumed to grow at the same rate. For the future
earnings an average of 5 years is used.

8
Baltika Breweries annual report 2008
Table 3: Earnings Growth

Therefore, MV = 24,054,052,000*13.24/151714796 = 2099,17

NPV of Future Cash Flow for the share price of Baltika Breweries

Table 4: Calculation of FCF and 3 year CAGR of FCF

Source: Baltika Breweries annual report 2008 and 2007

As the company does not give any plans or forecasts for its future cash flows, the last 3 FCF figures are taken
and CAGR is calculated. The CAGR will serve as an estimate for the future cash flows until 2013.
In order to discount the future cash flows for Baltika Breweries the WACC derived from the CAPM model
(Appendix 2) is taken. WACC = 15,2%

Table 5: PV calculations Baltika Breweries

MV = NPV of future cash flows/# number of shares. Therefore, 69,274,199,000/151,714,594 = RUR 456.61

SAB Miller

Net Asset Value (NAV) per share

The net asset value is defined as total assets – total liabilities, therefore, NAV = 35,813 – 17,569 = 18,2449
$m. End of 2008 the company had 1,505,779,000 ordinary shares outstanding. Therefore, NAV/share =
$12.115

Share valuation according to dividend yield

Annual gross dividend in 2008 was USD 664,902,000 (number of shares x dividend / share). Dividend yield =
0,42/16 = 0,026.
Div yield = Div/MV, therefore, 0,026 = 664,902,000/MV. MV = 25,573,153,846 Hence per share =
25,573,153,846/1,583,100,000 = $16.15

Price Earnings Ratio (P/E) for 2008

To calculate the P/E ratios, EPS figures and earning figures for 2007 and 2008 were used from the annual
report.

9
SAB Miller annual report 2008
Table 6: EPS and P/E

Source: SAB Miller annual report 2008

Given that the company has 1,581.1 mln shares outstanding. MV = 1,813.3*15.45/1583.1 = $17,69

Future Earnings
Between 2007 and 2008, revenus grew by 15%. Earnings are assumed to grow at the same rate. For the future
earnings an average of 5 years is used.

Table 7: Earnings Growth

Therefore, MV = 3,329*15,45/1583,1 = $32,48

 Appendix 4

In this appendix the cutting from financial documents of the Baltika (Russia) are presented

Excerpt 1: Baltika annual report 2008 – Financial Statement

Source: Baltika Breweries annual report 2008

Excerpt 2: Baltika annual report 2008 – Balance Sheet

Source: Baltika Breweries annual report 2008

 Appendix 5

In this appendix the cutting from financial documents of the SAB Miller (UK) are presented
Excerpt 1: SAB Miller annual report 2008 – Cash Flow Statement

Source: SAB Miller annual report 2008

Excerpt 2: SAB Miller annual report 2008 – Balance Sheet

Source: SAB Miller annual report 2008