Equity research report - Danone

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Equity research report - Danone

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Equity research report, Danone, investment, DCF method, CAC-40, positioning, environment protection, Covid-19, cashflow, weighted average cost of capital, market profitability, Nestlé, Mondelez, General Mills, market capitalization, financial analysis, debt ratio, liquidity, corporate governance

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Abstract

The purpose of this document is to present a detailed equity research on Danone group. First of all, we will present a brief investment summary of Danone, followed by an extensive and detailed valuation work on the company (based on DCF and multiples). We will see some of the KPIs related to financial analysis of the firm. We will then study the main investment risks that Danone currently faces. The last part of our document will be dedicated to getting an overview on corporate governance and current ESG considerations at Danone's' level.

Danone investment summary
Valuation of Danone (DCF and multiples)
1. DCF Method
2. Multiples method
3. Conclusions
Main KPIs on Danone - Financial analysis
Review of the main investment risks
Corporate governance & current ESG considerations from Danone

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[...] Liquidity risk. This is the risk for Danone not to have enough assets to cover its debt assuming its activity is continuing. There are several liquidity ratios (overall liquidity, short-term liquidity). This risk is low for Danone since the group has a high level of liquid assets. Concentration risk: This is the risk based on Danone concentrating its activity too much on one segment, one country, one activity, one geographic area. This risk is low for Danone as its product portfolio is balanced, as well as its geographical implantations. [...]

[...] In our case, average PER is 20,8 and market capitalization/revenue is 2,3 on average. We can therefore assume that Danone enterprise value is to be considered as very close to these averages. The main limit of this method is due to the difficulty finding comparable companies to generate the peer group. Conclusions Using the DCF method, Danone Enterprise Value can be estimated at around 185 BEuro, taking some reasonable, justified, and realistic assumptions. The sensitivity of all the parameters being very high and their impact on enterprise value being very big in case of a variation, these parameters need to be assessed very carefully. [...]

[...] As of 31/12/2019, Solvency ratio is about 38% for Danone. Corporate governance & current ESG considerations from Danone Danone corporate governance is based on a well-balanced distribution of powers, and experienced board leadership, long-term experience, and regular and appropriate changes on the board when required. As an example, Danone CFO will be exiting her functions in February 2021, replaced by Juergen Esser. She was occupying this function since 2015. Board of directors of Danone as of 31/12/2019 was composed of 16 members of them being independent being women being non-French and the average length of the 16 terms being close to 7 years. [...]

[...] First method used is based on the discounted cashflows. The second method is based on used the multiples. DCF Method DCF method is trying to assess the value of a company based on its discounted cashflows. The idea is to think that the overall value of the company approximately corresponds to how much the company will be able to generate cash in the coming years. This method assumes that the company should be valued based on its free cashflows, and not based on profitability for example. [...]

[...] Stock is on the French stock exchange CAC-40. Stock is approx EUR/stock early February 2021. Market capitalization is estimated around 34,6BEuro based on this stock price. Strategy/Positioning Danone is a world food company with a strong presence over Europe and North America and clearly states its willingness to contribute to health in the world via food & beverage. Market Danone is present worldwide with a strong presence in Europe, North America, Latin America and in the Asia Pacific area. Engagement in health and environment protection Company is rated AAA by most analysts. [...]

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