Harboe Brewery A/S: A Strategic Analysis and Valuation of the Company

Paw Oskar Gottenborg Bruun

Student thesis: Master thesis


The purpose of this thesis is to assess the value of Harboe Brewery A/S (hereafter Harboe). Harboe’s main activity is the production of beer and soda for the discount off-trade sector in Denmark, Germany, Sweden, Norway, Poland, and the Baltic countries. Harboe is the third largest brewer in Denmark (following Carlsberg and Royal Unibrew), in addition the company has a subsidiary, Harboe Farm A/S, which is involved in the manufacturing of meat products. As part of an established industry which creates products that are characterized as non-cyclical short-term consumer goods (food and beverages), the demand for Harboe’s products would be expected to be quite stable with relatively low exposure to the cyclical changes of the economy. However, an overall decrease in demand for beer in western economies during the past decade, combined with increased cost of production and intensifying competition has challenged the industry. The valuation of the company is based on a strategic and financial analysis, where Harboe’s capability to adopt its business model to the challenging circumstances of the external environment is evaluated. Based on the analyzed data, some of the main challenges identified in the strategic analysis are: rising raw material prices, intensified competition and a current risk of new taxes, combined with diluted profit margins due to the high bargaining power of customers, and the shifting preferences of consumers. However, the analysis also show that Harboe does have some success in focusing on high volume low cost production facilitated by its maintained, effective, and flexible production facilities. Based on the annual accounts, the financial analysis in general shows a low but stable profitability on the main financial value drivers of the company. The information from the strategic and financial analysis is used to budget the expected future development of the company’s free cash flow. These cash flows are then discounted back to their present value by the weighted average cost of capital using the discount cash flow model. Based on the above the share price is estimated at DKK 100.2 on the 29. June 2011, which is 12.87% lower compared to the actual quoted price of DKK 115 on that date. In evaluating whether Harboe is in fact overestimated the calculations were checked through Multiple Analysis and subjected to a sensitivity analysis, which supported the findings. Therefore the main conclusion of the analysis is that Harboe will not be able to generate enough value to satisfy the required rate of return of shareholders. A conclusion that indicates a challenging future for Harboe!

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2012
Number of pages98