Foster’s Group Limited Analysis and Valuation
Investment Decision Making Support
June 2010
Phuong Ho, Thanh Luong, Hanh Pham, Khoi Tran, Tai Tran, Huy Truong
Abstract
Valuation is the key activity for investment decisions. This document analyses Strategy, Accounting, and Financial conditions of Foster’s Group Limited within the context of the Australian Alcoholic Beverage Industry. The information is ultimately synthesized for Forecast and Valuation of the company. Time-series analysis is done for the 2007-2009 period with reference to the 2005-2006 period. Cross-sectional analysis puts Foster in contrast to its major competitor Lion Nathan. All information is from publicly available academic and reputable business sources.
On industry level, Foster is the largest player in a concentrated market. Foster can take advantage of the acquisition of Lion Nathan to move ahead in the competition. In terms of strategy, Foster is implementing various initiatives so as to maintain its position in Australasia and expand to the US and Asia. Accounting of the company is at high quality; however a concern of write-down is raised. On financial performance, Foster’s business is more fluctuating resulting from turbulence of its operations in the US market, compared to its opponent Lion Nathan. The volatility of earnings and growth may account for uncertainty of market perception toward the company and thus result in an undervaluation. Forecast of company sales growth ranges between 2.7% to 3.1% which is higher than industry value weighted average, and forecast of net operating profit margin is 18%. Valuation using three difference methods yields a fair price of AUD 5.85. We find the stock currently undervalued while the company has great prospects in long-term horizon, thus recommend Buy and Hold strategy. This recommendation receives analysts’ consensus.
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