Boston Beer Company Ticker: SAM Jeffrey Joe. Honglin Diao Boston Beer Company Ticker: SAM Jeffrey Joe Honglin Diao Nicolas Villarreal Daza

Why is Boston Beer Interesting? Recent Price Performance (Cumulative Stock Return) *Sources: Capital IQ

Why is Boston Beer Interesting? Simple Business > Margins vs Industry Median* >25% 5-year Average ROE* 1.7B Market Cap* Price Change vs Book Change* < D/E Low P/FCFF Multiples* 6 - 9 Market Analysts* Current Asset Allocation *Sources: American Association for Individual Investors (Feb 25 2017), Yahoo Finance (March 31 2017)

Industry Overview

Other Non Traditional 42% 12% 20% 25% 20% 20% 10% Industry Analysis Wineries, Distilleries Beer Industry Traditional Brewers Craft Beer Malt & Ciders Other Non Traditional 42% 12% 20% 25% Key Economic Drivers Per capita alcohol expenditure (5-year Expected CAGR: 1.1%) Excise tax (5-year Expected CAGR: -1.8%) Raw material prices (5-year Expected CAGR: 1.3%) Demand for beer (5-year Expected CAGR: 2%) SAM Main Market 20% 20% 10% Who Will Capture the Growth Potential? Beer Industry: Expected 4.4% 5-year revenue CAGR* Craft Beer Industry: Expected 5% - 7% 5-year revenue CAGR * *Sources: SAM 2016 10K, IBIS World Breweries Industry Report, IBIS World Craft Beer Industry Report

The Industry is GROWING Industry Analysis Industry Life Cycle The Industry is GROWING *Sources: SAM 2016 10K, IBIS World Breweries Industry Report, IBIS World Craft Beer Industry Report

Company Analysis

Pioneer Advantage Cost Advantage Niche Market What Boston Beer Does? The Value Chain Raw Materials On-Premise (Bar, Restaurant, Venues) Craft Beer Kegs SAM Breweries Hard Ciders Sales Force Distributors Bottles & Cans Off-Premise (Grocery, liquor stores) Malt Beverages Annual Contests Alchemy & Science Strategic Financing Better Beer = Craft + imported beer SAM Risks Losing Its Economic Moat Pioneer Advantage Cost Advantage Niche Market

Is the company on an inflection point? Strengths Weaknesses Opportunities Threats Market leader in the craft beer They have the best selling cider in USA Highest sales force (420 people) in the industry Small business lender with 98% successful repayment Long term relationships with two main suppliers Cash-rich company Heavily dependent on one single product (Samuel Adams) The company products are not a priority for its distributors SAM doesn’t have the economies of scale that the competitors does SAM doesn’t have the financial muscle that big players have Incoming management can bring fresh ideas Global expansion could represent a growth opportunity Differentiation through R&D investment Non-organic growth possibilities Long-time Board Director retires after 30 years of service to the company Recent M&A activity has strengthened the rival companies

Benchmarking SAM

Financial Ratio Analysis With Competitors Main competitors used for comparison: Craft Brew Alliance (BREW) Molson Coors Brewing Company (TAP) HEICO Corporation (HEIA) Anheuser-Busch InBev SA/NV (BUD) Return on Equity

Dupont Analysis (2016) 64% 100% 15% 145% 140% 20% Tax Burden Interest EBIT Margin Asset Turnover Leverage ROE

Working Capital / Operations Days Payable Outstanding Days Inventory Outstanding Days Receivable Outstanding Cash Conversion

Working Capital / Operations Current Ratio Inventory Turnover Quick Ratio Asset Turnover

Growth and Profitability Revenue Growth Net Margin

Financial Forecast

Our Main Assumptions

Barrels Sold, Revenue and Margins EBIT Margin Total Net Revenue Net Income

Valuation

Discount Rate Capital structure Equity Debt 99.9% 0.1% Cost of Capital Terminal Value Risk-free rate 3.3% Market risk premium 6.9% Tax rate 37% Levered Beta 0.89 Cost of Debt (Fixed) 3.8% Cost of Equity 9.5% Text Book Approach Adjusted Discount Rate WACC - Baseline 9.5% Size premium 1.0% Discount Rate 10.5% WACC - Baseline 9.5% 5 year required return 19.4% Discount Rate 14.4% 3 year required return 3.0% *Sources: Bloomberg, Federal Reserve https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

3% 1% DCF Perpetuity Growth Rate Optimistic Scenario Pessimistic Text Book Approach Adjusted Discount Rate Optimistic: $129 Pessimistic: $104 Optimistic: $89 Pessimistic: $74

DCF Sensitivity Analysis Text Book Approach Adjusted Discount Rate Implied Share Price (Optimistic) Growth rate 2.0% 2.5% 3.0% 3.5% 4.00% Discount rate 9.2% 123.02 128.04 133.73 140.24 147.74 9.7% 120.82 125.71 131.25 137.58 144.88 10.2% 118.69 123.45 $128.84 135.00 142.11 10.7% 116.63 121.25 126.50 132.49 139.41 11.2% 114.62 119.12 124.23 130.06 136.80 Implied Share Price (Optimistic) Growth rate 2.0% 2.5% 3.0% 3.5% 4.00% Discount rate 13.3% 87.98 89.88 91.96 94.22 96.70 13.8% 86.74 88.60 90.62 92.82 95.24 14.3% 85.54 87.35 $89.32 91.46 93.82 14.8% 84.37 86.13 88.05 90.14 92.43 15.3% 83.24 84.95 86.82 88.86 91.09 Implied Share Price (Pessimistic) Growth rate 0.0% 0.5% 1.0% 1.5% 2.00% Discount rate 9.2% 100.86 103.95 107.36 111.15 115.38 9.7% 99.43 102.44 105.78 109.48 113.62 10.2% 98.03 100.98 $104.24 107.86 111.90 10.7% 96.67 99.55 102.74 106.27 110.23 11.2% 95.34 98.16 101.27 104.73 108.60 Implied Share Price (Pessimistic) Growth rate 0.0% 0.5% 1.0% 1.5% 2.00% Discount rate 13.3% 73.47 74.69 76.00 77.42 78.95 13.8% 72.53 73.72 75.00 76.38 77.87 14.3% 71.62 72.78 $74.03 75.37 76.82 14.8% 70.73 71.86 73.07 74.38 75.79 15.3% 69.87 70.97 72.15 73.42 74.80 < Current Price ( around $ 140 )

Final Adjusted multiples Multiples Valuation Current price EV/EBITDA P/E P/B P/S Boston Beer 10.8x 26.6x 3.0x 2.0x Craft Brew Alliance 12.9x NA 2.1x 1.3x Molson Coors 12.7x 16.7x 1.8x 4.1x Heineken N.V. 11.5x 20.1x 2.2x Anheuser-Busch InBev SA/NV 15.4x 24.5x Beverage Industry (Alcoholic) 22.4x Last year is really a bad year for SAM, the craft market is growing but it sales decreased by 6%. Even though it might improve next year, but we think that it is still below the market. EV/EBITDA multiple P/E multiple P/B multiple P/S multiple Final Adjusted multiples 9.4x 20.1x 2.1x 1.8x *Sources: Bloomberg & Capital IQ

Summary Watchlist One year decrease: -21.39% Abundant cash in hand Almost no debt ( better than the industry) Good Metrics versus peers The market leader in craft beer Largest sales force team Heavy M&A in the industry Competition from other craft breweries New competition from big players Management team is retiring Dependent on single products (95%) Watchlist One year decrease: -21.39% Decrease from the highest: -54.65% Good: Even in the pessimistic scenario, boston beer still can generate enough cash flow internally. Reversion: It also faces the intensive competition from new startup breweries and traditional large beverage companies. Finally, why we put it into watchlist The company proves to have better asset management ability and is good at generating cash to satisfy its growth. However, it does face challenges from other competitors and have problem in maintaining its market share. It is unclear whether they will sucessfully handle this problem, so we decide to put it into the watch list