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Feedback from our Paris roadshow We spent some time with Carlsberg''s CFO, Ulrica Fearn, in Paris. Overall, we felt that the tone from the company was one of measured confidence with the key messages on the long-term growth outlook for the business being aligned with those given at FY23 results. Gross margin recovery Carlsberg expects to recover its gross margin to pre-pandemic levels (by which it means c.48-50%) over time. The key levers to this gross margin expansion are expected to be: continued pricing; premiumisation (including the benefit of both country / product mix); and COGS reduction (through cost efficiencies in procurement, production and pack / product simplification). Brand re-investment Part of the gross margin recovery will be re-invested into marketing and selling expenses to support the growth of Carlsberg''s premium brands. Carlsberg does not feel that it is lacking brand equity anywhere, but the investment will support continued premiumisation. Carlsberg is keen to stress that this increased investment behind premium brands will not just be in Asia but will include the core Western Europe markets. European pricing Pricing negotiations in Europe have been tough and there have been some ups and downs, but overall Carlsberg has got the pricing it set out to (in the negotiations that have been concluded so far). See within for more colour
Carlsberg Carlsberg AS Class B
We have made modest tweaks to our operational estimates to reflect updated thinking after attending Carlsberg''s analyst presentation. We do not consider the changes to be material; our rating and target price are unchanged.
2024-25e EBIT forecasts lowered by 7-8%. We think '24 will be an investment year where the cost base is reset. TP 1000 (941) , we maintain HOLD.
CARLB CARLB CAB
Summary of FY23 results Carlsberg''s Q4 LFL sales grew +9.2% (co. cons. +6.8%) with both volumes (-0.2% vs. co. cons. -1.0%) and price / mix (+9.4% vs. co. cons. +7.8%) coming ahead of expectation. FY LFL EBIT growth at +5.2% was -60bp below co. cons. and contributed to EBIT being a -160bp miss. FY EPS (adj. cont.) at DKK54.6 was c.5% ahead of co. cons. due to a combination of favourable non-controlling interest and tax. Carlsberg will propose an FY dividend of DKK27 (in-line with co. cons.). For FY24e Carlsberg expects group organic EBIT growth of +1% to +5%. News We highlight that as part of its strategy update (Accelerate SAIL) Carlsberg increased its long-term organic sales growth ambition to a +4-6% CAGR (cf. +3-5% previously). Earnings We revise our FY23e / FY24e / FY25e EPS by -3% / -2% / 0%. Investment thesis We believe Carlsberg will re-rate as the new CEO delivers a beat and raise pattern to 2024 that investors became accustomed to under the previous management team. Rating and target price We maintain our Outperform rating. Our target price moves from DKK1,040 to DKK1,080 (driven a 1-P/E upward increment in our target multiple). 15 questions for management Please could you share some examples of the supply chain productivity improvements which you expect to drive restoration of your gross margin to pre-Covid levels over time?
2024e-25e EBIT forecasts raised by 3%, EPS down 0-1%. We forecast 2024e organic EBIT growth of 10.1% (cons. at 9.7%). TP unchanged at DKK 900: HOLD.
Review of SAIL'27 underway. Update alongside Q4'23. 2023e earnings lowered due to higher costs. Reiterate HOLD, TP DKK 900.
Summary of Q323 sales Carlsberg Q3 LFL sales grew +5.8%, broadly in-line with consensus expectation (co. cons. +5.6%). However, volume growth missed in all regions (group LFL vols -3.0% vs. co. cons -1.4%) and this was offset by a price / mix beat (+9.1% vs. co. cons. +7.0%) which was arguably a touch flattered (we estimate c.+80bp impact on group Q3 LFL) by the inclusion of UK excise duties following the termination of the Kronenbourg 1664 licensee agreement. Carlsberg kept its FY LFL EBIT guidance range (+4-7%) unchanged but this now includes additional commercial investment of DKK200m in the remainder of the year. News We highlight that Carlsberg is conducting a review of its SAIL''27 strategy, the conclusions of which will be shared in February. While no dramatic changes should be expected, the review will focus on the allocation of resources and how / where to invest to ensure that Carlsberg captures its growth opportunities. Earnings We revise our FY23e / FY24e / FY25e EPS by c.-2%. Investment thesis While the valuation of the stock is undemanding, we see better value in Heineken and ABInBev. Rating and target price We maintain our Neutral rating. Our target price moves from DKK1,050 to DKK965. 15 questions for management While appreciating that it is still early days, what are the new CEO''s first impressions of Carlsberg''s digital capabilities?
Nothing too exciting to sink your teeth into in Carlsberg’s Q3 publication. Volumes came out below consensus in all segments. Pricing has been paramount to offset volumes and meet expectations. Looking forward, the company is facing weak consumer confidence in Europe while the economic situation in China has a knock-on effect on other economies in the region. The FY 23 outlook has been confirmed.
Sales forecasts increased by 0-1%, earnings lowered by 0-8%. We are broadly in line with consensus ahead of Q3'23. HOLD, TP lowered to DKK 900 (1,040).
Pricing and cost management took center stage in the H1 results. Organic volume growth turned out to be positive, driven by a robust performance from Asia, while the consumer situation in Europe remained more challenging. Given the consensus of +5.1% growth in the organic operating result, the increase to the guidance did not come as a big surprise. Despite easy comps for H2, Carlsberg remains cautious due to the lack of visibility on the Chinese situation and the challenging environment in Europe.
Summary of Q2 / H123 results A solid set of H1 results from Carlsberg. Q2 LFL sales growth at +9.0% was in-line with company consensus expectation with the split of volumes (-0.2% vs. co. cons. +0.2%) and price / mix (+9.2% vs. co. cons. +8.8%) also broadly in-keeping with the expected shape. From a regional perspective, strength in Western Europe (LFL sales +7.6% vs. co. cons. +6.8%) was offset by slightly weaker than expected growth in Asia and CEE. Group H1 LFL EBIT grew +5.2%, c.350bp ahead of co. cons. with the primary driver of the beat relative to Visible Alpha expectations again being Western Europe (+1.4% vs. VA cons. -6.7%). H1 continuing EPS at DKK29.3 was a c.2% beat. News We highlight that while it is not possible for Carlsberg to be precise (only c.50% of its commodity exposure has been hedged for 2024) considering the many ups and downs, in totality, it does not expect a ''massive, meaningful'' reduction in COGS next year. Earnings We revise our FY23e / FY24e / FY25e EPS by +1% / -1% / +1%. Investment thesis While we believe Carlsberg, like the other brewers, is well-placed to benefit from COGS deflation tailwinds in 2024, relative valuation and increased competition in China keep us Neutral. Rating and target price We maintain our Neutral rating. Our target price moves from DKK1,190 to DKK1,100 (driven by reduction in our target multiple). 15 questions for management You outlined that you do not see why your market share in China should not move up to c.10% over the next few years. Where do you envisage your market share in Vietnam being at this time?
China has been Carlsberg''s primary growth driver in recent years China is Carlsberg''s largest market at an est. c.20% of sales / c.31% of FY22 EBIT. It has also been the group''s primary growth driver in recent years. We estimate China contributed +1.2%-pts to Carlsberg''s +2.3% LFL beer volume CAGR between FY18-22 and 50% of Group EBIT growth. Within China, the WuSu brand has been the big growth driver In the 5 years to 2022, we estimate Carlsberg''s China LFL beer volumes have grown at an impressive +7.2% CAGR. We believe the business has been propelled by the expansion of WuSu which grew at an est. +26% CAGR over the same period, becoming Carlsberg''s largest brand in the market (an est. c.30% of FY22 volumes). Excluding WuSu, we estimate Carlsberg''s China 5-year volume growth CAGR is a much more moderate +1.4%. Do local investors know something we don''t? Shares of Chongqing (Carlsberg''s listed China sub.) have been weak of late (-33% YTD in EUR) underperforming peers: Yanjing +8%, Zhujiang +4%, CRB -12%, Tsingtao -10%, BudAPAC -22%. WuSu is now facing more competition from similar products released by peers The success of WuSu has generally been attributed to its differentiated positioning: its Xinjiang provenance; its larger bottle size; its higher malt content (making it slightly sweeter and easier to drink); and its higher alcohol content. Local press reports suggest peers have recently launched brand-lines with similar attributes that now compete more directly with WuSu. The ''safe'' beer play feels a little less safe With ABInBev and Heineken both facing near-term issues, we believe Carlsberg is viewed as the ''safe'' play in beer. However, Carlsberg is relatively dependent on China for growth and here we believe it is increasingly being subject to competitive pressure. While we see risk of a slowdown in growth momentum, this is balanced by likely material COGS tailwinds next year (see Brewers: 2024 an embarrassment of riches) and we...
Summary of Q123 sales A strong start to the year from Carlsberg with Q1 LFL sales growing +14.2% (c.+480bp ahead of co. cons.). The LFL beat was driven primarily by price / mix (+11.9% vs. co. cons. +7.9%) but encouragingly LFL volumes (+2.1% vs. co. cons. +1.4%) were also modestly ahead of expectation. Price / mix was exceptionally strong in Central and Eastern Europe at +29% (co. cons. +12.1%). Carlsberg increased the bottom-end of its FY23 LFL EBIT guidance range (now -2% to +5%) reflecting increased confidence and visibility in China. News We highlight that Carlsberg expects to achieve mid-to-high single digit LFL revenue growth in China in FY23e. Earnings We make no material revisions to our FY23e / FY24e / FY25e EPS estimates. Investment thesis While the valuation is undemanding, an uncertain volume outlook in Europe (Carlsberg has the highest exposure of the three European brewers) keeps us Neutral. Rating and target price We maintain our Neutral rating. Our target price moves from DKK990 to DKK1,160 (driven by an increase to our target multiple reflecting wider sector re-rating). 15 questions for management If material COGS deflation in FY24e comes to fruition, how would you think about how much gross margin expansion should be re-invested back into the business?
Strong quarter animated by a sales beat and narrowed FY23 EBIT guidance, but none of this came as a surprise, especially given a consensus already in the high end of the previous outlook.
Carlsberg has appointed Jacob Aarup-Andersen as its new CEO Yesterday Carlsberg announced that Jacob Aarup-Andersen (45) will join Carlsberg as CEO, replacing Cees t''Hart who will retire by the end of Q323 at the latest. With this report we review Mr Aarup-Andersen''s career, the actions he took as CEO of ISS, and assess his suitability to lead Carlsberg. Negatives: a background in finance and little obvious Consumer experience The incoming CEO has spent much of his career as an investment professional. More recently Mr Aarup-Andersen was CFO at Danica Pension and then at Danske Bank, before taking up his most recent position as CEO of ISS, a listed facility management company. Mr Aarup-Andersen therefore appears to have little obvious operational experience in the consumer goods sector. At age 45 we also believe he will be the youngest CEO across our Large Cap European Staples coverage. Positives: a strong track-record at ISS and likely to be shareholder friendly On the positive side Mr Aarup-Andersen has a strong, albeit short, track record at ISS. He joined the company as CEO on 1 Sept 2020 when the business was facing significant challenges due to the pandemic and quickly launched his turnaround plan (OneISS) in Dec-20. Having executed the plan and hit the commitments laid out within it, we believe Mr. Aarup-Andersen is well-liked by ISS investors. Following news of his impending departure we note ISS shares dropped sharply, closing down c.-7% (Carlsberg''s further strengthened by c.+2% after the news). We would have preferred more Staples / operational experience but keep an open mind We have to be honest and say that we would have preferred someone with both more of a sector (beverages / consumer staples) and sales and marketing (as opposed to a finance) background. However, Mr. Aarup-Andersen has an impressive resume backed up by a strong, albeit short, track record as a CEO at ISS. We can therefore understand why he appears to be a...
Summary of FY22 results Operationally, results were broadly in-line. Q4 LFL sales growth at +10.0% was in-line with company consensus (with rev/hl coming 110bp ahead helping to offset weaker than expected volumes). Scanning the Q4 regional delivery, there were no major standouts. While FY LFL EBIT growth at +12.2% was also in-line with company consensus (+12.0%), reported EBIT at DKK11,470m was c.1% below. Adj. cont. basic EPS at DKK55.7 was c.8% ahead of company consensus (primarily due to a lower-than-expected tax charge). News We highlight that the minority partner of Carlsberg South Asia Pte Ltd has exercised its put option and this has been valued at an average of USD744m (the average of two valuers). This put exercise is why the Supervisory Board has not instigated a share buyback in Q1. Earnings We revise our FY23e/FY24e/FY25e EPS by -2%, -5% and -5%. The greater variance in FY24e and FY25e reflects additional interest costs associated with assumed purchase of the put. Investment thesis While the valuation is undemanding, an uncertain European outlook (Carlsberg has the highest exposure of the three European brewers) and potential for near-term retirement of the highly regarded CEO keep us Neutral. Rating and target price We maintain our Neutral rating. Our TP moves to DKK980 (from DKK1020). 15 questions for management Does CEO, Cees ''t Hart, intend to present FY23 results?
No surprise in the FY22 results, which are “okay”, but the FY23 is slightly disappointing and should lead to negative revisions by consensus. Negative read-across for other brewers.
Summary of Q322 sales Carlsberg Q3 LFL sales growth at +11.6% came in-line with company consensus (+11.7%) with volume growth a little light (+3.6% vs. co. cons +4.2%) but price / mix a little ahead (+7.7% vs. co. cons +7.1%). From a regional perspective, LFL sales in Asia surprised positively at +19.3% (co. cons +17.0%) whereas Western Europe LFL at +5.7% was below consensus expectation (+8.1%) driven by price / mix. Carlsberg upgraded its FY22 organic operating profit growth outlook to +10-12% (from a previous expectation of high-single digit growth). News We highlight that despite inflationary pressures and deteriorating consumer sentiment in Western Europe, in most of its markets, Carlsberg has not yet seen any material down trading. Earnings We revised our FY22e / FY23e / FY24e EPS by -1% / -3% / -2%. Investment thesis We are concerned on the outlook for the European consumer and of the three European brewing majors, Carlsberg is the one with the biggest European exposure. Rating and target price We maintain our Neutral rating; our target price moves from DKK1,020 to DKK1,000. 15 questions for management In which of your markets do you see most risk of downtrading / demand softness in 2023?
Ahead of Carlsberg''s CMD on 28 September Carlsberg will host its CMD in Copenhagen on 28 September. Having already outlined the key elements of its SAIL''27 strategy in February, with this report we provide context to the topics likely to be explored in more depth by Carlsberg at the CMD. China: We expect to hear bullish expansion plans Following the exit from Russia, China will by some distance be Carlsberg''s largest market accounting for an estimated c.20% of sales and c.30% of group EBIT. We expect Carlsberg to share more detail around ambitious expansion plans in China, particularly its local WuSu brand. Demand for WuSu has been strong enough for it to organically find its way out of provincial stronghold in Xinjiang. Through SAIL''27 we expect Carlsberg to support WuSu''s distribution expansion more actively through its big city strategy for which it has now merged the WuSu and premium international brand cities. Western Europe: Premiumisation and margin expansion are likely to be the focus While Carlsberg has leading positions in most of its major European markets it remains materially under-indexed to the premium+ price tier. While there is clearly a lot of scope for Carlsberg to expand its share in the higher end, with all industry peers pursuing the same premiumisation strategy we believe material market share gains will be hard to come by. Through SAIL''27 we believe Carlsberg will take a pragmatic view on volumes in Western Europe, in favour of further cost / margin improvement to fuel investments in Asia. 27 questions for management Within we list 27 questions that we believe management could usefully address to give investors a better understanding of the Carlsberg equity story.
The first half beat expectations, possibly owing to the fact that the consensus has yet to be reviewed since the guidance upgrade last week. In any case, the H1 was very good although the H2 looks trickier. We continue to note the very good management of the group. Finally, the real news of the day was the announcement of the new ESG targets.
No big surprises in this report given the recent guidance update. The slight Q1 beat, however, reassured, driven by the strong on-trade reopening in Western Europe. Let’s keep an eye on China.
Carlsberg had accustomed us to better results, but we can’t judge them negatively, as they remain good overall and continue to reflect the group’s good financial health. Cautious next FY guidance, as usual.
Very strong publication which demonstrates, once again, the robustness of Carlsberg (vs. peers) even in the volatile market. Although the group says it is confident about inflation this year, comments for 2022 would be welcome during tomorrow’s conference call to give a clearer picture of the brewer’s future.
Another strong release, with slight beats on the top and bottom-lines, as well as upgraded FY21 guidance. The group continues to deliver.
Although most of the positives seem to be priced in, the share should continue to be ahead given the new performance of today. We can’t find anything to complain about.
Carlsberg demonstrated its resilience thanks to its off-trade exposure, China’s growth, and management’s ability to manage costs well. The FY21 guidance appears slightly cautious, but the group usually under promises, while over delivers. New quarterly share buy-back programme.
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