Heineken's Future Cash Flows Will Drive Value Beyond Expectations

1. Discounted Cash Flow (DCF) Method

The DCF method is central to this valuation. It estimates the Free Cash Flows (FCF) Heineken will generate in the future, then discounts them to present value using a required rate of return. FCF represents the cash remaining after operating expenses and capital expenditures—effectively what a company can return to shareholders. A high and growing FCF increases the intrinsic value of the share.

We use:

• A 5-year projection period (2025–2029)
• A Terminal Value for all years beyond 2029

1.1 Free Cash Flow (FCF) Projections (2025–2029)

Historical FCF:

• 2019: ~€2,228 million (pre-COVID, normal baseline)
• 2020: ~€1,513 million (COVID impact)
• 2021: ~€2,514 million (recovery)
• 2022: ~€2,409 million (stable)
• 2023: ~€1,759 million (drop due to working capital build-up)
• 2024: ~€3,058 million (strong improvement, mainly in Europe and Americas)

Heineken projects 4–8% organic profit growth in 2025. Considering this and historical performance, we apply a moderate 5% FCF growth rate per year for the next five years.

Year Estimated FCF (€ mln) Discount Factor @ 7.4% PV (€ mln) 2025 ~3,211 0.931 2,990 2026 ~3,371 0.867 2,923 2027 ~3,540 0.807 2,858 2028 ~3,717 0.752 2,794 2029 ~3,903 0.700 2,731

Total Present Value (PV) of 2025–2029 FCFs: ≈ €14,296 million

1.2 Terminal Value (TV) Calculation

a) Perpetual Growth Method (2%)

Formula:

TV = FCF2029 × (1 + g) / (r – g)

Where:

• FCF2029 = €3,903 million
• g = 2% (perpetual growth)
• r = 7.4% (discount rate)

Result:

TV2030 = €3,903 × 1.02 / (0.074 – 0.02) ≈ €73,721 million PV(TV) = €73,721 / (1.074)^5 ≈ €51,590 million

b) Exit Multiple Method (15× FCF)

Assuming a conservative exit multiple of 15× FCF:

TV2030 = 15 × €3,903 ≈ €58,545 million PV(TV) = €58,545 / (1.074)^5 ≈ €40,969 million

2. Required Rate of Return (Discount Rate)

Based on the CAPM formula:

r = Risk-free rate + β × Market Risk Premium

Inputs:

• 10-year US Treasury yield: ~4.3%
• Market risk premium: 5.5%
• Beta (β) for Heineken: ~0.55

Calculation:

r = 4.3% + 0.55 × 5.5% ≈ 7.3% → rounded to 7.4%

3. Supporting Data

• Net Debt (2024): ~€14.651 billion
• Shares Outstanding: ~562 million
• Growth Expectations: Conservative FCF growth of ~5% per year due to normalization after a strong 2024

4. Intrinsic Value per Share

4.1 Total Enterprise Value (EV)

• Perpetual Growth Method: EV = €14,296 + €51,590 = €65,886 million
• Exit Multiple Method: EV = €14,296 + €40,969 = €55,265 million

4.2 Equity Value

Subtracting net debt:

• Perpetual Growth: €65,886 – €14,651 = €51,235 million
• Exit Multiple: €55,265 – €14,651 = €40,614 million

4.3 Intrinsic Value per Share

Dividing by 562 million shares:

• Perpetual Growth: €51,235 / 562 ≈ €91.1 per share
• Exit Multiple: €40,614 / 562 ≈ €72.3 per share

5. Margin of Safety and Final Price Target

Applying a 15% margin of safety:

• Based on Perpetual Growth Intrinsic Value (€91.1): Price target = 0.85 × €91.1 ≈ €77.5 per share
• Based on Exit Multiple (€72.3): Price target = 0.85 × €72.3 ≈ €61.4 per share

✅ Conclusion

• Intrinsic value range: €72 – €91 per share
• Final target price (with 15% margin): ~€77 per share
• Current market price (July 2025): ~€71–72

Heineken appears slightly undervalued when using the perpetual growth method and fairly valued under the exit multiple method. The applied 15% safety margin offers downside protection against estimation errors or external shocks.

Sources:

• Heineken financial reports: ml-eu.globenewswire.com
• Beta & shares: deaandeelhouder.nl
• StockWatch methodology: stockwatch.nl
• Growth outlook: live.euronext.com