OPPORTUNITIES (3) Deleveraging ■■
Management recognised it is imperative to achieve a swift balance sheet deleverage to restore/enhance investor confidence post the MillerCoors transaction. The strong free cash flow generation (Estimated $1.5B in 2018) will be utilised to bring the Debt / EBITDA ratio down quickly from over 5x in 2016 to ~3.75x by Mid-2019. When the balance sheet is deleveraged, a number of options will be available for Management to create value for shareholders: 1.
Increase Quarterly Dividend – As noted before, as soon as the Debt/EBITDA ratio is at/ below 3.75x sometime near 2H 2019, Management expects to increase the quarterly dividend by +40% to +75% ($0.57 to $0.71) from current levels ($0.41)*.
Reinstate Share Repurchase Program – Management will be able to reinstate the USD1B share repurchase program that was suspended due to the additional borrowings for the MillerCoors transaction.
M&A Opportunities – Management can again consider M&A when opportunities present themselves. The Company can either be a consolidator or an acquisition target. Either way this could potentially create value for shareholders.
Based on the above opportunities, we believe the stock will re-rate in 2H 2019 when the Company announces it has achieved its deleveraging target of Debt/EBITDA ratio of 3.75x.
S&P, MOODY’S DEBT / EBITDA 6x 5x
Net debt reduced by >$1.5 billion
3x 2x 1x 0x
2015 2016PE 2017 S&P
* Data Source: Molson Coors presentation – Barclays Consumer Staples Conference – 5 September 2018