Valuation of Heineken N.V. : a fundamental analysis of a Dutch beer company

2020

The main objective of this paper is to determine the intrinsic value of one Heineken share as

of May 15, 2020. The primary method that is used in order to achieve this objective is

fundamental valuation (absolute valuation). This valuation technique, however, is also

complemented by the use of relative valuation.

Based on our analyses, we believe that Heineken’s fair share price should be €92.55. This

price results from our forecasts for the company’s performance in the future. Specifically,

troubled by the coronavirus-made pandemic, its revenue growth is forecasted to contract by

12% in 2020 before bouncing back by 6.8% and 8.4% in 2021 and 2022, respectively. Thanks

to its ownership of a fair number of internationally leading brands and its geographically

diversified operation, we believe that, for the next 15 years that follow 2022, the company will

enjoy relatively attractive revenue growths before reaching a constant growth of 2.6% from

2038 onwards. Furthermore, the company’s return on invested capital (ROIC) is forecasted to

gradually increase to 25.1% by 2027 and maintain at this level afterward, while its weighted

average cost of capital (WACC) is forecasted to be 6.84%.

Built upon the estimation of Heineken’s fair share price, we make our recommendation on

investment strategy. A margin of safety of +/- 10% is added to the intrinsic value in order to

account for uncertainties around the estimate, resulting in the confidence interval [€83.3;

€101.8]. If the stock is trading at a price lower than €83.3, a buy strategy is recommended. By

contrast, if the stock is trading at a price higher than €101.8, a sell strategy is recommended.

Finally, if the stock price is between €83.3 and €101.8, a hold strategy is recommended.