Illustrative DCF analysis for Happy Hour Co

Summary financials and cash flow

Management estimates J.P. Morgan outside-in extrapolation
DCF forecast year 0 1 2 3 4 5 6 7 8 9 10 TV
Mar YE ($m) 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
Revenue 1,149 1,256 1,354 1,447 1,443 1,471 1,498 1,522 1,543 1,562 1,577
% growth 9.3% 7.8% 6.9% (0.3%) 2.0% 1.8% 1.6% 1.4% 1.2% 1.0%
Adj. EBITDA 94 93 112 124 128 131 133 136 138 140 142
% margin 8.2% 7.4% 8.3% 8.6% 8.8% 8.9% 8.9% 8.9% 8.9% 9.0% 9.0%
% growth (1.6%) 20.7% 11.3% 2.6% 2.3% 2.1% 1.9% 1.7% 1.5% 1.3%
D&A (36) (40) (47) (52) (55) (54) (52) (51) (50) (49) (48)
% of revenue 3.1% 3.2% 3.5% 3.6% 3.8% 3.6% 3.5% 3.4% 3.2% 3.1% 3.0%
% of capex 79.3% 94.4% 103.7% 109.6% 107.2% 104.7% 102.3% 99.9% 97.4% 95.0%
Adj. EBIT 58 52 65 73 73 77 81 85 88 91 94
% margin 5.0% 4.2% 4.8% 5.0% 5.0% 5.2% 5.4% 5.6% 5.7% 5.9% 6.0%
Tax on EBIT (9) (11) (12) (12) (13) (14) (14) (15) (16) (16)
% tax rate 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0% 17.0%
Maintenance Capex (51) (50) (50) (50) (50) (50) (50) (50) (50) (50)
% of revenue 4.1% 3.7% 3.5% 3.5% 3.4% 3.3% 3.3% 3.2% 3.2% 3.2%
Change in NWC 16 15 11 4 0 0 0 0 0 0
Other cash flows 0 (5) (5) (5) (5) (5) (5) (5) (5) (5)
% of revenue 0.0% 0.4% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
Exceptional items (18) (7) 25 (5) 0 0 0 0 0 0
% of revenue 1.4% 0.5% (1.7%) 0.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Unlevered free cash flow 31 54 93 59 62 64 66 68 70 71 891
Cash flow Timing (Years to Discount) 1 2 3 4 5 6 7 8 9 10
Discount Factor 0.92 0.85 0.78 0.72 0.67 0.61 0.56 0.52 0.48 0.44
Discounted DCF cash flows 28 46 73 43 42 40 38 35 33 31 394

Net present value based on perpetuity growth method

Value Based on 8.5% WACC & 0.5% TGR Amount ($m) % of NPV Sensitising firm value ($m) and implied offer price to WACC and TGR
Present Value of Cash flows 409 50.9% Perpetuity Growth Rate (%)
PV of Terminal Value 394 49.1% 0.00% 0.25% 0.50% 0.75% 1.00%
Implied Firm NPV 803 100.0% 7.5% 888 / 404c 905 / 412c 923 / 421c 943 / 431c 964 / 442c
WACC (%)

Net debt as of Mar-20E (85) 8.0% 830 / 374c 845 / 382c 859 / 389c 875 / 397c 893 / 406c
Implied equity value 718 8.5% 778 / 348c 790 / 355c 803 / 361c 817 / 367c 831 / 375c
Implied offer share price (c) 361 9.0% 732 / 325c 743 / 331c 754 / 336c 765 / 342c 778 / 348c
% premium to current 118.8% 9.5% 691 / 305c 700 / 309c 710 / 314c 720 / 319c 730 / 324c
Source: Company Business Plan (January 2020); Equity research; J.P. Morgan analysis
WORLDWIDE BREWING 1