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

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

3. 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 ), Yahoo Finance (March )

4. Industry Overview

5. 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 K, IBIS World Breweries Industry Report, IBIS World Craft Beer Industry Report

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

7. Company Analysis

8. 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

9. 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

10. Benchmarking SAM

11. 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

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

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

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

15. Growth and Profitability
Revenue Growth
Net Margin

16. Financial Forecast

17. Our Main Assumptions

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

19. Valuation

20. 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

21. 3% 1% DCF Perpetuity Growth Rate Optimistic Scenario Pessimistic
Text Book Approach
Adjusted Discount Rate
Optimistic: $129
Pessimistic: $104
Optimistic: $89
Pessimistic: $74

22. 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 )

23. 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

24. 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: %
Decrease from the highest: %
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