Laurent Perrier is a French company that specializes in champagne, a luxury product. Laurent Perrier manages both the production and the distribution of its champagnes and wines. The Group owns its distribution network (through restaurants, hotels, bars, retailers and direct sales). This is an advantage for the Group since it helps capture margins, and reduce sales volatility.
Laurent Perrier is considered to have the best growth potential in the beverage sector. The Group tends to export more and more while bottle prices are increasing steadily. The company also has the highest percentage of self-grown grapes on the markets, which allows it to have a strong balance sheet, with an expected decrease of the gearing which is more significant than that of the competitors.
Nowadays Laurent Perrier is considered to be the best group on the champagne market and has the best growth in share price.
[...] Société Générale initiated the coverage of Laurent Perrier with this method because, at that time, it considered that the company was trading at a discount to its floor valuation, and was therefore strongly undervalued. The restated net asset value as of May 2007 pointed out a 81.5 floor share price, against previously. This increase was based on the figures of the acquisition of the Taittinger brand by Credit Agricole. Today the share is trading clearly above the floor price, and the DCF and multiple analysis methods are more relevant. [...]
[...] Valuation of Laurent Perrier To evaluate Laurent Perrier, we used both a DCF method based on the forecasts of Société Générale's, our own assumptions, and a multiples peer comparison method. With respect to our DCF method, we followed two ways of implementation. The first mirrored the method of the broker did. We computed a DCF based on a 30-year period without calculating any terminal value. The second method was a more “classical” DCF method, based on SG's estimates until 2011 and then decreasing those estimates in a cash flow fade manner, until ROCE equals WACC. [...]
[...] Indeed, the broker used a 1.15 Beta for Laurent Perrier in its Wacc calculation. These two values are different from the one we found on Bloomberg. Laurent Perrier's Beta is stated at We decided to keep the SG Beta value (i.e ) as we found it relevant, that a company serving the luxury market should overreact to market changes. In a bearish market, customers will first stop buying luxury products while in a bullish market, luxury sales can easily explode. [...]
[...] SG explained this change by stating that Laurent Perrier may not be able to sustain such a high performance in the coming months. In fact, we observe that in the past few weeks, Laurent Perrier's share price have started to decrease and the stock is currently trading at approximately 114€. Consequently, our position concerning the SG note released in May 2007, is to say that the company is under-valued at a price of 104€. However, this difference of opinion must be linked to the 6-months difference in our analysis. [...]
[...] Laurent Perrier tries to hedge itself by concluding supply contracts with the grapes growers, but this may not be sufficient in case of a major increase. This is why we assumed that grape prices were a major issue and had to be analyzed. As we can see, between the smallest and the highest raise, there is a difference of 33.9 in the final share price. Bottle prices Given the limited production capacity of the Champagne area, the real driver of the future growth is the increase in prices. [...]
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