Chris Swasbrook of Elevation Capital Management presented his in-depth investment thesis on Molson Coors (US: TAP) at Best Ideas 2019.
Through successive rounds of M&A, Molson Coors has become one of the largest brewers in the world. However in recent years, beer consumption (especially non-craft beer) is in decline in developed countries. This coupled with Molson Coors’ higher leverage (to fund the USD12B MillerCoors transaction) are the main reasons why Molson Coors is one of the worst performing publicly listed global brewers recently, and is currently trading near/below book value — with a 10+% FCF yield.
Elevation Capital believes the following factors will see the stock re-rate in 2019/2020:
1. A continuation of the deleveraging to achieve a Debt / EBITDA ratio of 3.75x;
2. Increase in quarterly dividends by +40% to +70% from current levels;
3. Introduction of its first non-alcoholic cannabis-infused beverages for the Canadian market;
4. Early delivery on its cost saving targets of $700M for the 2017-2019 period; and,
5. A share repurchase program reinstated.
Elevation Capital believes the stock will re-rate to at least 12x EV/EBITDA, which implies a price of USD92.20 per share, which offers upside potential of +44% from recent levels — based on Molson Coors share price of US$64.10 at at 23 November 2018.
In a takeover scenario, Elevation Capital believes the stock is worth 14x EV/EBITDA, which implies a price of USD115.33, offering an upside potential of +80% — based on Molson Coors share price of US$64.10 at at 23 November 2018.
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About the instructor:
Christopher Swasbrook is Managing Director of Elevation Capital Management Limited a global investment manager based in Auckland, New Zealand. He was previously a Partner of Goldman Sachs JBWere Pty Limited and Co-Head of Institutional Equities at Goldman Sachs JBWere (NZ) Limited. Christopher is a member of the NZX Listing Sub-Committee and a member of the NZ Markets Disciplinary Tribunal. He is also a Director of NZX listed – Mowbray Collectables Limited. Christopher graduated from The University of Auckland with a BCom (Economics) in 1995.