Strategic and Financial Analysis & Valuation of Pernod Ricard

Panagiotis Gkolemis

Student thesis: Master thesis


The scope of this thesis was to determine the fair value of Pernod Ricard1’s share as of 24.09.2014 when its last annual report was released. The fair price was estimated by the use of the DCF and EVA model and based on the conclusions of the strategic and financial analysis. Moreover, a relative valuation was conducted in order to support the result founded by the use of these two present value models. Finally, a sensitivity analysis was also made as many key inputs used in the DCF and EVA model are subject to uncertainty. The strategic analysis revealed that the company is affected significantly by the hostile political decisions taken regarding the alcoholic drinks industry. The increase in VAT for alcoholic drinks in France and the prohibition of public wining and dining in China forced the sales to decrease by 7.35% in 2014. Moreover, new demographic groups such as millennials are concerned about the health problems related to alcohol consumption and they prefer wise drinking patterns. However, the sales are expected to increase significantly due to the improving living conditions in China, increased wine and spirits consumption in the US and due to the “Premiumisation” strategy. Also, the launch of the Allegro project in 2014 will increase the EBITDA margin as it is expected to generate savings of €150 million from decreased structure costs.The financial analysis showed that PR has the lowest ROE and ROA among its peer companies. PR has already taken some actions such as the disposal of four non-priority brands. Moreover, the liquidity risk analysis revealed that as the Group has already passed the upper limit of its credit rating (3.5 Net debt/EBITDA), it is not is position to engage in major debt funded acquisitions. This subsequently means that not great investments are expected in the near future. To make the forecasting as reliable as possible three scenarios are formed: a realistic, an optimistic and a pessimistic one. With a constant WACC of 5.62% applied, the fair price under the realistic scenario is found to be €104.28 on 24.09.2014, 18% higher than the actual trading price (€88.41). The higher estimated price is deriving from the reasonable assumptions that the company will benefit from the increasing alcoholic drinks consumption in China and that it will decrease further its operating costs after the launch of the Allegro project. The relative valuation yields almost identical results (€102.91, €106.36) to the PV models which come to verify that PR’s share was undervalued on this specific date.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2015
Number of pages107