Top Banner
November 2019 PepsiCo Investment Highlights November 24, 2019
24

PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

May 10, 2020

Download

Documents

dariahiddleston
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Page 1: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

November 2019

PepsiCo Investment HighlightsNovember 24, 2019

Page 2: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

Disclaimer

The analyses and conclusions of Queen’s Capital contained herein are based on publicly available information. The analyses provided

may include certain statements, estimates and projections prepared with respect to, among other things, the historical and anticipated

operating performance of the companies, access to capital markets and the values of assets and liabilities.

Such statements, estimates, and projections reflect various assumptions by Queen’s Capital concerning anticipated results that are

inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for

illustrative purposes. Actual results may vary materially from the estimates and projected results contained herein.

Queen’s Capital assumes no responsibility or liability for any error, inaccuracy, or omission contained that may be made of such

information by the viewer. No information herein may be replicated without prior consent by the Executive Board of Queen’s Capital.

1

Page 3: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

2

Overview

Company Description

Company Overview

Source: Investor Presentation

Note: Market Data as of 22-Nov-19

• PepsiCo is an American multinational

food, snack, and beverage corporation

founded in 1898, with products offered

in over 200 countries and serving over

1 billion customers daily

• Headquartered in Harrison, NY, it is

the second largest food and beverage

business in the world, behind Nestle

• As of 2018, Pepsi was advertised on

TV more than any other beverage in

the United States(Statista)

1880: Recipe

for soft drink

developed

1898: Coins

the name

“Pepsi-Cola”

1902: Creates

the Pepsi-Cola

Company

1965:

Merger with

Frito-Lay Inc.

1988:

Acquisition

of Tropicana

2001:

Merger with

Quaker Oats

Company History

2019: Pepsi

as we know

it today

Stock Price: US$134.07 52-Wk Range US$105.03 –

US$140.45 ‘

Market Cap: US$187.0 bnEnterprise

Value:US$215.3bn

LTM Revenue: US$66.0bn LTM EBIT: US$10.0bn

Dividend Yield: 2.85% LTM EPS: US$8.88 / Share

Key Financial Information

Page 4: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

3

Description of Key Operating Segments

Revenue Segmentation

Frito-Lay North America (FLNA)

Branded food and snack businesses in the

United States and Canada

Quaker Foods North America (QFNA)

Cereal, rice, pasta and other branded food

businesses in the United States and Canada

PepsiCo Beverages North America (PBNA)

Beverage businesses in the United States and

Canada

Latin America (LatAm)

Beverage, food and snack businesses in Latin

America

Europe Sub-Saharan Africa (ESSA)

Beverage, food and snack businesses in Europe

and Sub-Saharan Africa

Asia, Middle East and North Africa (AMENA)

Beverage, food and snack businesses in Asia,

the Middle East and North Africa

North American International

Page 5: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

4

$5,456 (33%)

$3,891 (24%)

$3,161 (19%)

$1,868 (11%)

$1,542(9%)

$567(4%)

$17,188

billion

Year-Over-Year Q3 Revenue Breakdown

Portfolio Overview

$5,643(33%)

$4,105(24%)

$3,347 (20%)

$1,904 (11%)

$1,613(9%)

$576(3%)

$16.485

billion

PepsiCo is divided into six segments consisting of its major products and geographies

PepsiCo Beverages

North America

FritoLay

North America

Q3 2018 Q3 2019

European Sub-

Sharan Africa

Latin

America

Asia, Middle East

And North Africa

Quaker Foods

North America

4.3%

Page 6: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

5

Price Volume Chart

Company Description

Company Overview

Capitalization Table

0.0

10.0

20.0

30.0

40.0

50.0

$90.00

$104.00

$118.00

$132.00

$146.00

$160.00

12-Nov-18 12-Mar-19 12-Jul-19 12-Nov-19

Current Capitalization

Enterprise Value $213.5

(+) Cash and Cash Equivalents $5.8

('-') Total Debt $32.6

('-') Value of Preferred Equity -

('-') Minority Interest $0.1

Total Equity Value $186.6

Basic Shares Outstanding 1.394

Current Share Price $133.81

9-Jul-19: PepsiCo Tops

Q2 Earnings Forecast,

Holds 2019 Guidance,

as Snack Sales Impress

76.9%

23.1%

Institutional

Retail

Breakdown by Investor Type

Page 7: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

6

Ten Largest Shareholders

Shareholder Composition

Company Overview

Source: Bloomberg (November 2019)

Company NamePosition

(millions of shares)

Value

(US$ millions)

1 Vanguard Group 113,728 $15,150,905

2 BlackRock 103,364 $13,770,161

3 State Street 66,761 $8,893,941

4 Bank of America 26,205 $3,491,011

5 Wellington Manement 24,652 $3,284,184

6 Bank of New York 22,975 $3,060,753

7 Geode Capital Manement 19,985 $2,662,352

8 Northern Trust 19,625 $2,614,427

9 Invesco 17,163 $2,286,439

10 Fidelity Investments 15,614 $2,080,066

• PepsiCo shareholder base consists of several

large institutions holding large blocks, each of

whom are well diversified

• Company insiders own about 0.20% (~$350

million) of its shares

• This helps validate the use of the Capital

Asset Pricing Model (CAPM)

Ke = rf + β(Rm – rf)

Capital Asset Pricing Model

Ten Largest Shareholders

Page 8: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

7

Management Team

Company Overview

Ramon Laguarta

Chairman and

Chief Executive Officer

Hugh Johnston

Vice Chairman and Chief

Financial Officer

Silviu Popovici

Chief Executive Officer

Europe

Paula Santilli

Chief Executive Officer

Latin America

Paula Santilli

Chief Executive Officer

Latin America

Kirk Tanner

Chief Executive Officer

Beverages North America

Eugene Willemsen

Chief Executive Officer

Africa Middle East and Asia

Steven Williams

Chief Executive Officer

Foods North America

Page 9: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

8

Returns by Competitor

Company Overview

Share Price Returns (Indexed to 100)

PepsiCo has delivered consistent returns that have outpaced its counterpart,

Coke, over the last five years

70.0%

100.0%

130.0%

160.0%

190.0%

220.0%

250.0%

280.0%

22-Nov-14 22-Nov-15 22-Nov-16 22-Nov-17 22-Nov-18 22-Nov-19

KEURIG Dr. Pepper (KDP US Equity)

Monster (MNST US Equity)

Pepsi (PEP US Equity)

Coke (KO US Equity)

Keurig Acquisition of Dr Pepper Snapple

Closes, Removed Special Dividend of

$103.75 to Snapple Shareholders

232.3%

161.7%

135.9%

119.8%

Page 10: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

9

Dividends (Last 12 Months) Over Time

Company Overview

Dividends have increased for 47 consecutive years, providing a consistent 3% yield on the stock,

Although in this time PepsiCo has maintained approximately a ~0.50% dividend payout ratio

Quarterly Dividend ($)

Dividend Yield$1.700

$1.860

$2.060

$2.210

$2.620

$2.910

$3.220

$3.765

3.3%

2.8%

3.1%

2.8% 2.7% 2.7%3.0%

2.7%

31-Mar-09 30-Sep-10 30-Mar-12 30-Sep-13 31-Mar-15 30-Sep-16 30-Mar-18 30-Sep-19

Page 11: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

10

Global Soft Drink Consumption By Region

Non-Alcoholic Beverages and Snacks Industry

Recent Trends

Major Competitors

• Pepsi and Coca-Cola comprise 42% of the liquid

beverage market

• Global soft drinks market forecasted to grow at a

CAGR of 4.5% during 2017-2022

• Growing middle class, increasing disposable

income, and the continuous addition of new

products drives growth

• Factors that determine level of competition

include brand recognition, established customer

and supplier relationships, innovation, and

acquisitions

300

350

400

450

500

550

600

11/01/2016 11/01/2017 11/01/2018 11/01/2019

Beverages Snack Foods

35%

27%

21%

15%

2%

Asia-Pacific

US

Europe

Rest of the World

Middle East

S&P 500 Soft Drinks Index (Pepsi, Coke, Monster)

Major CompetitorsUS$562.57

Page 12: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

11

Non-Alcoholic Beverages and Snacks Industry

Market Share by Product

Sourcse: Statista

2.3

9.74.8

9 10.4

0.7 3.3

-0.7

-10.8

3

37.2

7.1

0.9 3.34

2.8

1.4

-5-0.7

4.3

-0.6

-20

-10

0

10

20

30

40

50

60

CSD EnergyDrinks

BottledWater

SparklingWater

SportsDrinks

Juices SaltySnacks

Kellogs Monster Coke Pepsi Market

12-Week Sales Growth Commentary

• The broader energy drink

market is rapidly growing as

consumers move away from

sugar drinks

• Rockstar Energy drinks saw a

9.6% decrease in sales from

2017-2018

• Sparkling water sales

considerably boosted with the

launch of Bubly water in 2018,

which has since been gaining

rapid market share

• The sparkling water market is

predicted to double In size from

2015 – 2021

• Pepsi-owned Gatorade is by far

the most dominant sports drink,

providing them with a 29.3%

market share in that segment

Page 13: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

12

Growing Dominance in Snacks Segment

Investment Thesis I – Consistent Product Innovation

Other

Soft Drinks

Sports

Drinks

Energy

DrinksJuice and

Fruit Drinks

Bottled

Water

Cola

Drinks

Healthier

Snacks

Other

Bits and BitesChips

Oats and

GranolaTea

Beverages Snacks

Other

Soft Drinks

Sports

Drinks

Energy

DrinksJuice and

Fruit Drinks

Bottled

Water

Cola

DrinksTea

Beverages Snacks

?

PepsiCo continues to outpace competitors in adapting to changing consumer demands and trends

within the industry, consistently growing their share of wallet

Page 14: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

13

Notable Acquisitions

PepsiCo has a long history of making acquisitions

Investment Thesis I – Consistent Product Innovation (cont’d)

1977 – PepsiCo

acquires Pizza Hut

1978 – PepsiCo

acquires Taco Bell

1986 – PepsiCo

acquires KFC

1989 – PepsiCo

acquires Walker Crisps

and Smith Crisps

1998 – PepsiCo

acquires Tropicana

2006 – PepsiCo

acquires Naked

Juice, Izze, and

Stacy’s Pita Chips

2011 – PepsiCo

acquires Mabel, a

leading producer of

cookies in Brazil

2018 – PepsiCo

acquires SodaStream

PepsiCo maintains a healthy cash position of ~$5.5bn leaving it poised to continue to grow its

portfolio. However, it only has a current ratio is only 0.9537

List of Peers

Company Market Cap

$345,829.60

$259,993.57

$215,312.96

$93,235.90

$66,432.25

$58,126.66

$30,456.99

$30,241.00

$24,788.57

$22,556.57

Page 15: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

14

PepsiCo is well positioned to create and deliver value to its shareholders

Investment Thesis II – Strong Financial Performance

Source: Company Investor Presentation

13.1%Organic Revenue Growth

Since 2012

+160 bpsCore Operating

Margin Expansion

Since 2012

9%Core Constant Currency

EPS Growth

Since 2012

+9.5 ppsCore Net ROIC

Since 2012

9% CAGRDividends Per Share

Since 2012

$45BCumulative Cash Returned

to Shareholders

Since 2012

Over the long term, PepsiCo is targeting between 4 – 6 % organic revenue growth and

20 – 30 BPS in margin expansion

Page 16: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

15

RisksNo Significant Threats Posed to the Business

Source: Company Filings

Potential Risks

O1

C1 O2

Highly

Likely

Not

Likely

Low

Impact

High

Impact

Competitor Risk

Operational Risk

Growth in Developing & Emerging Markets (C1)

Changing Consumer Demands (O1)

Changing Consumer Demands

Growing health concerns

relating to sugary beverages

Risk Mitigating Factor

Increased product

diversification to include

healthier products

Regulation Regarding Disposable Plastics

Potential increase in costs or

negative impact on consumer

demand

Risk Mitigating Factor

Transition to more

environmentally friendly

packaging

Growth in Developing & Emerging Markets

Poor growth due to cultural

differences, consumer

preferences and competition

Risk Mitigating Factor

Acquiring businesses and

developing strategic business

alliances Regulation Regarding Disposable Plastics (O2)

Page 17: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

16

Comparable Companies Multiples

Valuation

Source: Bloomberg

Price Mkt. Cap. Ent. Val. EV / Sales EV / EBITDA P / E

(US$ mm) (US$ mm) LTM 2019E 2020E LTM 2019E 2020E LTM 2019E 2020E

Beverage Producers

Coca-Cola Co/The $53.03 $227,206.57 $259,993.57 7.2x 7.0x 6.7x 22.0x 22.1x 20.5x 24.7x 25.1x 23.4x

Keurig Dr Pepper Inc $30.30 $42,625.66 $58,126.66 5.3x 5.2x 5.1x 17.0x 17.3x 15.8x 29.1x 24.7x 21.4x

Monster Beverage Corp $58.63 $31,524.28 $30,241.00 7.4x 7.2x 6.6x 20.5x 20.3x 18.7x 28.6x 28.3x 26.1x

Mean 6.6x 6.2x 5.8x 18.7x 18.8x 17.2x 28.9x 26.5x 23.8x

Median 6.3x 6.2x 5.8x 18.7x 18.8x 17.2x 28.9x 26.5x 23.8x

Convenience Food Producers

Campbell Soup Co $46.83 $14,104.57 $22,556.57 2.4x 2.8x 2.8x 12.4x 13.8x 13.8x 18.4x 18.5x 17.7x

Conagra Brands Inc $28.73 $13,981.57 $24,788.57 2.5x 2.3x 2.3x 12.5x 11.6x 11.1x 15.2x 13.7x 12.2x

Kellogg Co $64.51 $22,003.99 $30,456.99 2.2x 2.3x 2.3x 11.8x 13.6x 13.3x 18.0x 16.6x 16.2x

Kraft Heinz Co/The $30.54 $37,294.25 $66,432.25 2.6x 2.7x 2.7x 10.3x 11.0x 11.3x 9.2x 10.9x 11.7x

Mondelez International Inc $51.80 $74,582.90 $93,235.90 3.6x 3.6x 3.5x 16.8x 17.9x 16.8x 20.5x 20.8x 19.7x

Nestle SA $103.10 $306,825.60 $345,829.60 3.7x 3.7x 3.7x 19.2x 17.3x 16.6x 29.1x 23.7x 22.8x

Mean 2.8x 2.9x 2.9x 13.8x 14.2x 13.8x 18.4x 17.4x 16.7x

Median 2.5x 2.7x 2.7x 12.4x 13.7x 13.6x 18.2x 17.5x 16.9x

PepsiCo Inc $134.07 $186,952.0 $215,313.0 3.3x 3.2x 3.1x 15.8x 16.5x 15.4x 24.1x 24.1x 22.6x

Weight EV / Sales EV / EBITDA EV / EBIT P / E

LTM 2019E 2020E LTM 2019E 2020E LTM 2019E 2020E LTM 2019E 2020E

Coca-Cola Co/The 50.0% 7.2x 7.0x 6.7x 22.0x 22.1x 20.5x 25.2x 25.3x 23.4x 24.7x 25.1x 23.4x

Beverage Producers 25.0% 6.3x 6.2x 5.8x 18.7x 18.8x 17.2x 21.7x 20.7x 18.9x 28.9x 26.5x 23.8x

Convenience Food Producers 25.0% 2.5x 2.7x 2.7x 12.4x 13.7x 13.6x 15.9x 17.5x 17.4x 18.2x 17.5x 16.9x

Weighted Multiples 100.0% 5.8x 5.7x 5.5x 18.8x 19.2x 17.9x 22.0x 22.2x 20.8x 24.1x 23.5x 21.9x

Implied Share Price $255.61 $254.75 $254.92 $163.02 $159.66 $159.33 $149.84 $148.62 $147.65 $134.27 $130.91 $130.00

PepsiCo trades at a discount to other beverage producers and a slight premium to its

Convenience Food Producers universe

Page 18: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

17

Comparable Companies Key Metrics

Valuation

Source: Bloomberg

Revenue Growth ROIC ROCE ROA Gross Margin EBITDA Margin Profit Margin

3-Year CAGR 3-Year Average 3-Year Average 3-Year Average 3-Year Average 3-Year Average 3-Year Average

Beverage Producers

Coca-Cola Co/The -8.2% 7.1% 23.6% 5.4% 61.4% 30.5% 23.2%

Keurig Dr Pepper Inc 5.8% 16.0% 39.8% 9.6% 55.6% 23.6% 12.4%

Monster Beverage Corp 11.8% 22.1% 22.2% 18.1% 62.5% 36.4% 24.6%

Mean 3.2% 15.1% 28.5% 11.0% 59.8% 30.2% 20.1%

Median 5.8% 16.0% 23.6% 9.6% 61.4% 30.5% 23.2%

Convenience Food Producers

Campbell Soup Co 0.6% 9.4% 30.2% 5.1% 35.4% 20.2% 5.9%

Conagra Brands Inc 3.3% 8.7% 16.7% 5.8% 29.1% 15.9% 8.5%

Kellogg Co 0.0% 11.2% 50.6% 6.8% 36.2% 15.5% 8.3%

Kraft Heinz Co/The -1.5% 1.5% 2.1% 1.0% 34.5% 6.1% 5.2%

Mondelez International Inc -4.3% 6.7% 10.1% 4.2% 39.2% 15.2% 10.1%

Nestle SA 1.0% 14.0% 14.0% 6.5% 50.0% 17.7% 9.5%

Mean -0.2% 8.6% 20.6% 4.9% 37.4% 15.1% 7.9%

Median 0.3% 9.1% 15.3% 5.5% 35.8% 15.7% 8.4%

PepsiCo Inc 0.6% 17.6% 66.0% 10.4% 54.8% 19.5% 12.4%

Page 19: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

18

Precedent Transaction Analysis

Valuation

Source: Bloomberg

PepsiCo trades at a discount to other beverage producers, and is a relatively better buy

on profitability metrics than other Convenience Food Providers

Enterprise Value / Premiums Paid

Date Transaction Purchase Equity Enterprise LTM LTM LTM Days Prior to Unaffected

Announced Acquirer Target Type Consideration Value Value Sales EBITDA EBIT 1 7 30

8/28/2019 Pernod Ricard SA Castle Brands Inc Cash $216 $243 2.6x 70.0x 82.7x 92% 94% 117%

11/22/2018 Berli Jucker PCL White Group PCL Cash n.a. $49 3.8x 24.4x 28.6x 14% 13% 13%

8/20/2018 PepsiCo Inc SodaStream

International Ltd

Cash $3,265 $3,169 5.5x 28.5x 36.5x 11% 12% 30%

2/12/2018 Cott Corp Crystal Rock

Holdings Inc

Cash $21 $34 0.6x 8.7x 43.5x 23% 22% 21%

12/15/2016 Heineken NV Punch Taverns Ltd Cash $497 $1,982 3.9x 7.2x 7.5x 2% 31% 46%

3/15/2016 Davide Campari-

Milano SpA

Societe des

Produits Marnier

Lapostolle SA

Cash $386 $376 4.5x 21.8x 28.9x 60% 60% 66%

12/7/2015 Mondelez

International Inc.

Keurig Green

Mountain Inc

Cash $13,790 $14,065 3.1x 13.6x 18.4x 78% 74% 90%

Mean 3.4x 24.9x 35.2x 40% 44% 55%

Median 3.8x 21.8x 28.9x 23% 31% 46%

Page 20: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

19

Forecast Period Output

Discounted Cash Flows

Historical Period CAGR Projection Period CAGR

2016A 2017A 2018A 2016 - 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2019 - 2025

Total Revenues $62.8 $63.5 $64.7 1.5% $67.1 $69.7 $72.3 $75.1 $77.9 $80.9 $84.0 3.8%

% Growth n.a. 1.2% 1.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8%

EBITDA $12.2 $12.9 $12.8 2.7% $13.5 $14.0 $14.5 $15.0 $15.6 $16.2 $16.8 3.8%

% Growth n.a. 6.0% (0.6%) 5.1% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8%

% Margin 19.4% 20.3% 19.8% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%

EBIT $9.8 $10.5 $10.4 3.1% $10.9 $11.4 $11.8 $12.2 $12.7 $13.2 $13.7 3.8%

% Growth n.a. 7.4% (1.0%) 5.2% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8%

% Margin 15.6% 16.5% 16.1% 16.3% 16.3% 16.3% 16.3% 16.3% 16.3% 16.3%

Unlevered Taxes @ 21.5% $2.1 $2.3 $2.2 $2.4 $2.4 $2.5 $2.6 $2.7 $2.8 $2.9

Unlevered Net Income $7.7 $8.2 $8.2 $8.6 $8.9 $9.3 $9.6 $10.0 $10.4 $10.7

Add: D&A $2.4 $2.4 $2.4 $2.5 $2.6 $2.7 $2.8 $2.9 $3.0 $3.1

Less: Capex $3.0 $3.0 $3.3 $3.3 $3.4 $3.5 $3.7 $3.8 $3.9 $4.1

Less: Increases in NWC $0.5 $0.2 ($2.8) $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.6

Unlevered FCF $6.5 $7.4 $10.1 24.2% $7.4 $7.7 $8.0 $8.3 $8.6 $8.9 $9.2 3.8%

Discount Rate @ 4.18% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2% 4.2%

Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5

Present Value FCF $7.2 $7.2 $7.2 $7.2 $7.1 $7.1 $7.1

Assumptions

Sales (% growth) n.a. 1.2% 1.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% 3.8%

COGS (% sales) 44.9% 45.3% 45.4% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0%

SG&A and Other (% sales) 39.5% 38.1% 38.5% 38.7% 38.7% 38.7% 38.7% 38.7% 38.7% 38.7%

Dep. & Amort. (% sales) 3.8% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7%

Effective Tax Rate 21.5% 21.5% 21.5% 21.5% 21.5% 21.5% 21.5% 21.5% 21.5% 21.5%

CapEx (% sales) 4.8% 4.7% 5.1% 4.9% 4.9% 4.9% 4.9% 4.9% 4.9% 4.9%

Working Capital (% COGS) 1.7% 0.8% -9.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%

3.8% Organic Revenue CAGR since 2012, most other line items have been stabilized and held as a

percentage of sales

Page 21: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

20

$12.2

$12.9 $12.8

$13.5

$14.0

$14.5

$15.0

$15.6

$16.2

$16.8

2016A 2017A 2018A 2019A 2020A 2021A 2022A 2023A 2024A 2025A

$62.8 $63.5 $64.7

$67.1

$69.7

$72.3

$75.1

$77.9

$80.9

$84.0

2016A 2017A 2018A 2019A 2020A 2021A 2022A 2023A 2024A 2025A

$9.8

$10.5 $10.4

$10.9 $11.4

$11.8 $12.2

$12.7 $13.2

$13.7

2016A 2017A 2018A 2019A 2020A 2021A 2022A 2023A 2024A 2025A

$9.8

$10.5 $10.4

$10.9 $11.4

$11.8 $12.2

$12.7 $13.2

$13.7

2016A 2017A 2018A 2019A 2020A 2021A 2022A 2023A 2024A 2025A

Assumptions

Discounted Cash Flows Output

Revenue EBITDA

Earnings Before Interest and Taxes (EBIT) Unlevered Free Cash Flows (UFCF)

Page 22: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

21

Cost of Capital Calculation

Discounted Cash Flows Output

PepsiCo has a low beta, which when combined with very low U.S. government yields contributes to an

extremely low cost of capital. We added an equity premium of 0.5% to account for market uncertainty

WACC Calculation Comparable Companies Unlevered Beta

Capital Structure Levered Market Val. Market Val. Debt/ Marginal Unlevered

Debt-to-Total Capitalization 15.8% Company Beta(4) of Debt of Equity Equity Tax Rate Beta

Equity-to-Total Capitalization 84.2% Coke 0.55 $43.8 $225.7 19.4% 26.0% 0.48

Monster 1.12 0.0 31.5 0.1% 22.7% 1.12

Cost of Debt Keurig Dr Pepper 0.56 15.6 42.2 36.9% 25.7% 0.44

Cost of Debt 2.1%

Tax Rate 21.5%

After-Tax Cost of Debt 1.7%

Mean 0.74 18.8% 0.68

Cost of Equity Median 0.56 19.4% 0.48

Risk-free Rate 1.8%

Market Risk Premium 5.1% ValueCo Relevered Beta

Levered Beta 0.55 Mean Target Target

Cost of Equity 5.15% Unlevered Debt / Marginal Relevered

Beta Equity Tax Rate Beta

WACC 4.60% Relevered Beta 0.48 18.8% 21.5% 0.55

WACC Calculation Comparable Companies Unlevered Beta

Capital Structure Levered Market Val. Market Val. Debt/ Marginal Unlevered

Debt-to-Total Capitalization 15.8% Company Beta(4) of Debt of Equity Equity Tax Rate Beta

Equity-to-Total Capitalization 84.2% Coke 0.55 $43.8 $225.7 19.4% 26.0% 0.48

Monster 1.12 0.0 31.5 0.1% 22.7% 1.12

Cost of Debt Keurig Dr Pepper 0.56 15.6 42.2 36.9% 25.7% 0.44

Cost of Debt 2.1%

Tax Rate 21.5%

After-Tax Cost of Debt 1.7%

Mean 0.74 18.8% 0.68

Cost of Equity Median 0.56 19.4% 0.48

Risk-free Rate 1.8%

Market Risk Premium 5.1% ValueCo Relevered Beta

Levered Beta 0.55 Mean Target Target

Cost of Equity 5.15% Unlevered Debt / Marginal Relevered

Beta Equity Tax Rate Beta

WACC 4.60% Relevered Beta 0.48 18.8% 21.5% 0.55

Page 23: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

22

Implied Share Price and Sensitivity Analysis

Discounted Cash Flows

Teminal Growth Method Implied Equity Value Multiple Method Implied Equity Value

Terminal UFCF $293.40 Implied Enterprise Val. $274.9 Terminal EBITDA $16.8 Implied Enterprise Val. $243.5

Discount Rate 4.2% Value of Cash $5.8 Exit Multiple 15.0x Value of Cash $5.8

Discount Period 6.5 Value of Debt $32.6 Terminal Value $252.4 Value of Debt $32.6

PV of Terminal Value $224.8 Value of Preferred Equity - Discount Rate 4.2% Value of Preferred Equity -

PV of Forecasted FCFs $50.1 Minority Interest $0.1 Discount Period 6.5 Minority Interest $0.1

Implied Enterprise Val. $274.9 Implied Equity Value $248.1 PV of Terminal Value $193.5 Implied Equity Value $216.7

FD Shares Outstanding 1.4 PV of Forecasted FCFs $50.1 FD Shares Outstanding 1.4

Intrinsic Value/Share $177.73 Implied Enterprise Val. $243.5 Intrinsic Value/Share $155.24

Share Price Sensitivity Implied Multiple

Perpetuity Growth Rate Multiple

155 0.0% 0.5% 1.0% 1.5% 2.0% 151 14.0x 14.5x 15.0x 15.5x 16.0x

3.6% $163.49 $187.91 $221.72 $271.63 $352.73 3.6% $151.57 $156.36 $161.16 $165.95 $170.74

4.1% $141.11 $159.09 $182.87 $215.79 $264.40 4.1% $146.82 $151.47 $156.11 $160.76 $165.41

4.6% $123.60 $137.30 $154.81 $177.98 $210.05 4.6% $142.24 $146.74 $151.25 $155.75 $160.25

5.1% $109.52 $120.26 $133.61 $150.67 $173.23 5.1% $137.81 $142.18 $146.54 $150.91 $155.27

5.6% $97.97 $106.56 $117.02 $130.03 $146.64 5.6% $133.53 $137.77 $142.00 $146.23 $150.47

WA

CC

WA

CC

Football Field Implied Share Price

Comparable Set Implied Share Price Weight

Comparable Companies $149.84 30%

Precedent Transactions $159.49 30%

Discounted Cash Flows $154.81 40%

Implied Share Price $154.72 100%

Current Share Price $134.07

Implied Upside 15.4%

$134.07

$140.35

$151.25

$164.02

$192.03

$175.00

ComparableCompanies

PrecedentTransactions

Discounted CashFlows

Page 24: PepsiCo Investment Highlightsqueenscapital.ca/wp-content/uploads/2020/01/pepsico-pitch.pdf · Quaker Oats Company History 2019: Pepsi ... Keurig Acquisition of Dr Pepper Snapple Closes,

Position –

Queen’s Capital

23

Alex Collins

Portfolio Manager

Taras Wylynko

Junior Analyst

Thank You