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We have made modest revisions to our organic operational forecasts and updated FX. We do not consider the changes to be material; our rating is unchanged.
Carlsberg Carlsberg AS Class B
What happened? We recently caught up with Carlsberg ahead of its closed period (it reports H125 results on 14th August) to get an update on what the company has been saying to investors over recent weeks. Overall, we felt the tone was neutral and our sense is that Bloomberg consensus expectations for H1 (LFL vols -1.4%, LFL sales +0.1%, LFL EBIT +2.7%) are broadly reasonable at a group level. Carlsberg''s FY25 guidance is unchanged. Points of colour below: Western Europe: Carlsberg started Q1 well in April, while May was more mixed driven by the weather which was v. good in France and UK but colder YOY in the Nordics. June weather comps. are generally favourable. Overall, our sense was that Q1 vols could see a modest vol. decline (albeit depending on how June goes) with positive contributions from UK (ex. San Miguel), France and the Nordics offset by Poland and the San Miguel UK license impact. CEE and India: Ukraine is facing a sequentially tougher vols. comps and the operating environment was also challenging in Q2. However, momentum in India continues to be strong and the phasing of sell-in in the base period in Q1 vs. Q2 is favourable. Asia: The underlying beer industry in China in Q2 is broadly in-line with Q1 (in slight decline) and Carlsberg does not benefit from easy comps until H2. In Vietnam, while market shares continue to be in decline in Q2 the destock impact on sell-in observed in Q1 should not repeat. Britvic: The GBP250m guidance pointer Carlsberg gave for Britvic EBIT contribution in 2025 encapsulated a best estimate including assumption of some underlying YOY growth; some synergies; additional investments agreed with Pepsico; and some PPA allocation.
Initiate coverage of Carlsberg ADR With this report we initiate coverage of Carlsberg ADR, in coordination with our pre-existing coverage of Carlsberg. Converting our existing Carlsberg target price (DKK880) at the current DKK/USD spot rate, we initiate coverage of Carlsberg ADR with a Neutral rating and a target price of USD27 which is adjusted for the 5:1 ADR ratio (five Carlsberg ADRs represent one Carlsberg ordinary share). Our target price implies 15.4x CY25e P/E. Our latest research on Carlsberg can be found here: CARLSBERG: Q125 sales and 15 questions for management
What happened? Yesterday afternoon we attended a sell-side analyst meeting hosted by Carlsberg''s management team in London. BNPP Exane View: Carlsberg came across as being in a relaxed mood and shared its continued confidence on the merits of the Britvic acquisition a few months post deal close. We summarise the key points of feedback below. Key points of colour: . Britvic: Carlsberg took over the business on 16th Jan (now 3.5 months of ownership) but the teams have been working diligently since the take over announcement, preparing plans (within legal boundaries) and had extensive communication plans ready on day 1. Carlsberg set quite ambitious day 100 targets for the new management team, and everything has gone according to plan: the first level of people synergies have been taken (commercial teams were ring-fenced) and Carlsberg is now looking at procurement synergies which will take longer. Commercial momentum has remained strong (share gains continued for key Britvic brands in the UK) and Carlsberg has announced an expansion to the commercial organisation to expand Pepsi brands. Carlsberg has had conversations with all key UK customers with some early wins. Another important aspect of the integration has been that the systems were protected, and they are working together already in Q1. Overall, Carlsberg views the risk profile on the integration process (which it already viewed as being relatively low) as having come down a few months post close. . Britvic Q1 vols: The c.-4% decline in Britvic organic sales in Q1 reflected a c.-1% decline in the UKandI (a good performance given the tough comp. on Easter phasing and lapping of the big Pepsi launch). The decline in the rest of the business can be attributed roughly 50/50 between contract exits and an underlying decline in the International business. . Soft drinks in Q1: Carlsberg''s organic soft drinks volumes were up nicely in Q1 and the decline was primarily driven by Laos and Cambodia. In...
Summary of Q125 sales Carlsberg''s Q1 LFL sales declined -1.5% marking a modest (c.-50bp) miss vs. company consensus. LFL volume growth (-2.3% vs. co. cons. -1.7%) was the source of the sales miss vs. expectation, and by region we note that Asia (vols. -2.1% vs. co. cons. -0.8%) and CEEI (vols. -1.7% vs. co. cons. +0.8%) were the drivers. In Western Europe, LFL volumes surprised positively (-3.1% vs. co. cons. -4.7%) which we primarily attribute to strength in Poland which grew volumes double-digits. News We highlight that Carlsberg volumes in China grew +2% in Q1 in a beer industry that it estimates declined c.-2-3%. Earnings We revise our FY25e-FY27e EPS by c.+1%. Investment thesis Given Carlsberg''s reliance on market-share driven growth in China, we see better value at Heineken and ABInBev. Rating and target price We maintain our Neutral rating. Our target price moves from DKK775 to DKK880 (reflecting increase to our target multiple). 15 questions for management You described Q1 Alcohol-Free Brews (AFB) volume growth of +15% as being structural. Have you observed a step-change in consumer demand for alcohol-free beer in your major European markets?
BNPP Exane view While there were only modest incremental points of note from the call, what we did learn was generally positive. Specifically, Carlsberg has been happy with April in Europe (going according to plan); the decline in Britvic Q1 vols is primarily explained by contract terminations / Easter timing; and replacement of lost San Miguel UK license vols is slightly ahead of plan. All said, with the YTD strength of the shares in mind, the c.-1-2% share price reaction is in-keeping with our expectation, and we don''t expect a material shift from this range today. Highlights: QandA . April trading: confirm things are going according to plan in April with good Easter across Europe (weather has been okay). Happy with April but looking into some bigger summer months to come. . Pricing in WE: some pricing negotiations to conclude but most are done. No major issues to report. . China: see continued stabilisation of the market in Q1 which has continued in April. . China rest of year: a lot of moving parts. Last year market declined c.-4%, believe market improved in Q1 (-2-3%) but consumer sentiment has not changed with channel mix under pressure and there is the unknown from tariffs. On the positive side see easier weather comps; talk about potential stimulus and improving off-trade. Carlsberg focus will be to continue to drive market share gains as it did in Q1. Overall see a market that is slightly better than last year which Carlsberg is outperforming. . Western Europe: good strength despite Easter timing in a number of markets esp. Poland. See that UK has strong momentum ex. SM and the beer portfolio is doing very well. Seeing very good CSD performance and plays into diversification of category mix. . Britvic contract terminations: not giving specific number on negative impact from contract terminations but the decline in France is primarily driven by that. Pleased with the underlying performance. . UK: the on-trade has been subdued for some...
BNPP Exane View Q1 LFL sales are a touch light (-50bp miss vs. co. cons) driven by volumes. While a return to vol. growth in China in Q1 (+2% vol) is encouraging, given the YTD strength of the shares we expect negative share price reaction today (around low-single digits). Q1 headline metrics . LFL sales: -1.5% (co. cons: -1.0%; BBG cons. -0.6%) . LFL vol: -2.3% (co. cons: -1.7%; BBG cons. -1.7%) . LFL price / mix: +0.8% (co. cons: +0.8%; BBG cons. +1.0%) Top-line drivers Scanning the top-line drivers by region, we note that the volume miss relative to company consensus expectation was driven by a combination of: Asia (vols -2.1% vs. co. cons. -0.8%) where Carlsberg comments on +2% vol growth in China being offset by a soft start to the year in Vietnam, Laos and Cambodia (energy drinks); and CEEI (vols. -1.7% vs. co. cons. +0.8%) which was impacted by soft consumer sentiment in Ukraine and a soft market in Kazakhstan where Carlsberg lapped stock build in Q1. Bottom-line drivers N/A - only a sales update. Other metrics . Q1 vol. ex. San Miguel UK : -1.1% . Q1 organic beer vol: -2.3% . Q1 organic other beverages vol: -2.5% . China: solid start to the year; +2% vol growth in Q1 and flat rev./HL. China beer industry declined by est. LSD. . Western Europe: we note Poland volumes grew by +DD in Q1. . Britvic: Q1 LFL vols -4.1% and sales -5.3% (reflecting tough comps, the phasing of Easter and deliberate actions to optimise the business outside the UK and Ireland, including the termination of certain contracts). Based on the performance and progress of the integration of the business so far, Carlsberg continues to expect EBIT of GBP250m from Britvic in 2025. Integration is progressing well and according to plan. FY25 outlook . LFL EBIT: +1-5% (co. cons. +3.4%) . FX on EBIT: expect translation impact of around -DKK200m excluding the impact of hyperinflation accounting in Laos which will be included in scope (BBG cons. +DKK60m). . Finance expenses ex....
We have adjusted our estimates for modest operational tweaks, primarily related Q1 sales growth assumptions and updated FX. We do not consider the changes to be material; our target price and rating are unchanged.
What happened? We recently caught up with Carlsberg ahead of its closed period (it reports Q125 sales on 29th April) to get an update on what the company has been saying to investors over recent weeks. Carlsberg''s FY25 outlook is unchanged. BNPP Exane View: Carlsberg called out some of the same technical calendar headwinds to Q1 (lapping of leap year / Easter timing) as flagged by peers driving a slightly cautious tone with respect Q1 organic volume growth but overall, our sense was that Q1 has developed in-line with the company''s expectation in most markets. We believe consensus expectation for flattish Q1 organic sales (-0.2% per BBG cons.) looks reasonable. Points of colour below: Western Europe: Q1 sales growth in Western Europe will be negatively impacted by several technical headwinds: San Miguel UK license loss (c.-4% impact on regional vols); lapping of Kronenbourg UK price / mix benefit (c.-180bp impact); Easter timing and the lapping the leap year. Our sense was that Carlsberg has landed small price increases in most markets in-line with its own expectations without any major disputes. In France pricing will likely be negative as part of efforts to recovery some of the share loss observed last year. Asia: Carlsberg re-iterated its comment that it saw a solid start to the year in China with good demand pull from distributors in January. This was caveated with the comment that Carlsberg does not have visibility of sell-in for March and Q1 faces the toughest comp. of the year in China. Overall, we believe our forecast of flat organic volumes in China in Q1 is broadly reasonable. In Vietnam, Carlsberg has been impacted by share loss in Q1 in its Central stronghold. CEE and India: The strong momentum at Carlsberg''s India business has continued into Q1. In Ukraine the operating environment continues to be very tough with increased conflict activity in the quarter.
What happened? This morning, we attended a sell-side analyst meeting hosted by Carlsberg''s management team in London. BNPP Exane View: Overall, management came across as being in a relaxed and confident mood. We summarise the key points of feedback below: Key points of colour: . Opening remarks: Carlsberg broadly ended FY24 as expected with Q4 seeing a continuation of themes in Q3. Looking to 2025, management feel very comfortable with the guidance given (in usual Carlsberg fashion) and it is not seeing further deterioration in any of its major markets. It is still early days in 2025, and it was not the intention to be particularly bullish on China, but Carlsberg entered the new year in a good position in China after the Q4 de-stock and saw good sell-in in January. Carlsberg does not yet have visibility on China sell-out numbers for January and so it remains to be seen how strong the sell-in will be in Feb / March. The Britvic deal has now been closed and after having the keys for a couple of weeks, there are no negative surprises, and the business case is confirmed. . China: Q4 growth in the Big Cities was better than in the Western stronghold, the difference was not dramatic did help to support mix for the overall business. Within each region (Big Cities and West) Carlsberg saw some downtrading and the on-trade channel remains very weak with the off-trade taking share. Consumers are not going out but there is still social activity and the off-trade is benefitting from higher marketing activity from the major players. Chinese beer market volumes declined c.-4% to -4.5% in 2024 which means the off-trade channel was quite resilient. For FY25, Carlsberg is not guiding to a China volume growth expectation (it is too early) but expects to outperform the market. The travel data around CNY is up around +5% and this is typically beneficial for the Western strongholds as people travel home. . Vietnam: Carlsberg''s expansion into the South is progressing...
Summary of Q4/FY24 results Carlsberg''s Q4 LFL sales were flat (co. cons. +1.2%) with the miss driven by volumes (-1.2% vs. co. cons. -0.1%) which were weaker-than-expected across all three regions. FY LFL EBIT growth at +6.0% was a modest (+30bps) beat. FY EPS (adj. cont.) at DKK54.9 was c.5% ahead of co. cons. driven by lower finance costs and tax. FY DPS at DKK27 was in-line with expectation. For FY25e, Carlsberg expects group LFL EBIT growth of +1% to +5% (including a c.-2-3% impact from the loss of the San Miguel UK license). News We highlight that Carlsberg expects a flattish COGS/HL development in FY25 supported by deflation on barley and sugar, offset by increased inflation on aluminium, other packaging, labour and conversion costs. Earnings We revise our FY25e / FY26e / FY27e EPS by c.+2% / c.-1% / c.-1%. Investment thesis While Carlsberg is inexpensive, we see little reason for this to change given likely underwhelming growth in 2025. Rating and target price We maintain our Neutral rating. Our target price moves from DKK800 to DKK770 (primarily driven by modest reduction to our target multiple, reflecting wider sector de-rating). 15 questions for management What has surprised you most positively and negatively about the Britvic business having now completed the acquisition?
BNPP Exane view While there was little incremental news from the call, the tone of the management team was confident. We would put the market enthusiasm for the shares which strengthened through the call (now c.+5-6%) down to a combination of this confident tone; re-assuring guidance and comment on a good start to the year in China. This said, given that we expect consensus earnings to be subject to downgrades rather than upgrades we are surprised at the extent of the positive share price move and would not be surprised to see some paring of the gains. Highlights: QandA . Assumptions on guidance: have been heavily impacted by a weaker consumer in recent years due to inflation. Not assuming any change in overall consumer sentiment in the guidance. So, a change in this, particularly in China could drive Carlsberg to the high end of the range. An important factor will be Chinese New Year. Weather will also be an important factor in Europe. . China: in Q4 in China saw a decline as focussed on getting to distributor levels healthy going into 2025. Looking into Q1, had a solid start with good sell-in despite a solid comp. Need to see how wholesalers'' re-stock after January. Not calling for a significant change in China but given the start in January think got the level of destock in Q4 right. . COGS/HL: there is good momentum on driving savings in COGS line. In 2025 expect COGS/HL to be about flattish and on commodities have seen declines in barley and sugar. Others have increased such as aluminium and barley. Salaries and therefore conversion costs will increase. . Capex: underlying capex is still DKK5-5.5bn and then another EUR100m of Kazakhstan bottling investment and then Britvic capex of DKK0.8bn. . Pricing outlook: can''t be specific but broadly expect positive pricing impact across markets (inc. WE). Still see total costs slightly up. Market-by-market there will be variation but need to cover cost increases. . France: when looking at 2024 the...
BNPP Exane View Q4 LFL sales are a c.-1% miss (driven by vols). Turning to the outlook, the mid-point of FY25 LFL EBIT guidance is in-line with consensus expectations, and this is typically re-assuring given Carlsberg''s habit of guiding conservatively. However, driven by higher tax guidance we expect consensus earnings to be subject to c.-3-4% downward revision. Keeping the material YTD strength of the shares in mind, we expect a negative share price reaction this morning (c.-2-3%). Q4/FY24 headline metrics . Q4 LFL: 0.0% (co. cons: +1.2%; VA cons. +1.1%) . Q4 vol: -1.2% (co. cons: -0.1%; VA cons. -0.3%) . Q4 price / mix: +1.2% (co. cons: +1.2%; VA cons. +1.3%) . FY LFL EBIT: +6.0% (co. cons: +5.7%) . FY EBIT: DKK11,411m (-0.5% vs. co. cons.) . FY EPS (adj., cont.): DKK54.9 (+5% vs. co. cons.) the beat at EPS appears to be driven by lower finance costs. . DPS: DKK27.0 (co. cons. DKK27.0) Note: Q4 company consensus has been backed out of the FY. Q4 Top-line drivers Scanning the top-line drivers by region the Q424 flat LFL sales performance (vs. co. cons. +1.2%) was led by weaker-than-expected sales in Asia (-4.7% vs. co. cons. -1.5%), driven by both volume and price/mix, and Central and Eastern Europe and India (+2.7% vs. co. cons. +6.5%) which was partially offset by better trends in Western Europe (+0.8% vs. co. cons. -0.1%) where we note vols missed but price /mix was a material beat. FY Bottom-line drivers The +10bp YOY FY EBIT margin expansion reflects GM +120bp, Marketing, selling and distribution -70bp, Admin -30bp, Other Op. Income (net) -10p and Associate / JV profits 0bp. From a regional perspective, we note that FY LFL EBIT the modest FY24 LFL EBIT beat (+6.0% vs. co. cons. +5.7%) was led by Asia (+7.9% vs. VA cons. +2.6%) and Western Europe (+5.2% vs. VA cons. +3.3%), while Central and Eastern Europe and India came in below expectations (+9.6% vs. VA cons. +13.3%). Other metrics . Net debt: DKK27.4bn (co. cons. DKK27.5bn) . FCF: DKK6.4bn (VA...
We have adjusted our estimates to reflect minor changes to our FY24/25e operational forecasts and updated FX. We do not consider the changes to be material; our rating is unchanged.
We downgrade Carlsberg to Neutral (from Outperform) With this report we downgrade our rating on Carlsberg from Outperform to Neutral. Given that the shares are cheap and China sentiment is already very low, we suspect some may question the timing of our rec. change. We explain our reasoning. The shares are cheap on P/E but less so on EV-metrics Carlsberg is a cheap stock on P/E (c.13.4x CY25e) but this is arguably in large part driven by balance sheet leverage (via the Britvic acquisition). Carlsberg is less cheap on EV-metrics and trades at a premium to Heineken and ABInBev. It is also the best performing alcohol stock in EU Bevs YTD. We expect organic volume and EBIT growth to underwhelm in 2025 Held back by the loss of the UK San Miguel license we don''t expect LFL volume / EBIT growth to enthuse both in an absolute sense and relative to consensus. We forecast flat LFL volumes (co. cons. +0.4%) and +1.4% LFL EBIT growth (co. cons. +4.8%). Evidence of recovery in China is unlikely to come until H225 We believe a meaningful recovery in Carlsberg''s valuation multiple is predicated on the market becoming comfortable that the China business (est c.25% of EBIT) will return to mid-term volume growth. While we believe it will, evidence is unlikely to be seen till H225e given the phasing of comps. More of a 2026 story We believe there could be a lot to like about Carlsberg in 2026 (deleverage, China recovery, Britvic synergies, Kazakhstan Pepsi bottling sales entering organic growth) however we struggle to envisage a material re-rating this year. We therefore downgrade Carlsberg to Neutral (TP to DKK795 from DKK980).
We have adjusted our estimates primarily to reflect revised assumption on the likely profit impact of the loss of the San Miguel UK license in 2025. Reflecting our profit revisions, our target price moves to DKK980 (from DKK1,020). We do not consider the changes to be material; our rating is unchanged.
Summary of Q324 sales Q3 LFL sales at Carlsberg grew +1.3% and missed consensus expectations by c.-100bp. Organic volumes declined -0.2% (co. cons. +0.4%) made up of a Beer vols decline of -1.3% partially offset by Other beverage vol. growth of +5.1%. From a regional perspective, strength in CEE and India (LFL sales +9.8% vs. co. cons. +8.0%) was offset by weakness in Western Europe (LFL sales +0.1% vs. co. cons. +1.7%) and Asia (LFL sales -3.3% vs. co. cons. -2.0%). News We highlight that Carlsberg is confident that it can deliver the high-end of its +4-6% FY24 organic EBIT guidance range. Earnings Our FY24e / FY25e / FY26e EPS are materially unchanged. Investment thesis As the market digests the Britvic acquisition and re-appraises the merits of being a Pepsi bottling consolidator, we expect the stock to recover its multiple on a higher earnings base. Rating and target price We maintain our Outperform rating. Our target price moves from DKK1,000 to DKK1,020. 15 questions for management Excluding the impact of the loss of the San Miguel UK license, do you expect to be within your long-term organic sales growth ambition range of +4-6% next year?
We have adjusted our estimates to reflect modest reduction to our operational estimates (particularly Q324 LFL sales growth), updated FX, and the announcement that Carlsberg will become the PepsiCo bottler in Kazakhstan and Kyrgyzstan from 1 January 2026. We revise our target price from DKK1,035 to DKK1,000. We do not consider the changes to be material; our rating is unchanged.
Summary of Q2/H124 results Carlsberg Q2 LFL sales grew +1.9% (vols. +1.0%) and missed consensus expectation by -200bp driven by Western Europe (-1.3% vs. co. cons. +2.0%) and Asia (+1.9% vs. co. cons.+5.4%) which were both impacted by adverse weather. H1 LFL EBIT growth at +4.7% was broadly in-line with co. cons. (+4.6%) but DKK EBIT was a c.-2% miss. Carlsberg H1 gross margin expanded by +160bp which was was offset by a material step-up in marketing investments (-110bp). H1 EPS (adj. basic) at DKK28.6 was a c.-4% miss driven by a combination of the miss at the EBIT level and above consensus NCI. News We highlight that bad weather and weak consumer sentiment continued into July in China and therefore Carlsberg expects H2 growth in China to be lower than H1 (+3% vol. growth) leading to expectation of modest growth in the FY. Earnings We revise our FY24e / FY25e / FY26e EPS by -6% / -5% / -5% which reflects a combination of the H1 EPS miss and unfavourable revisions to FY24e organic EBIT growth, FX, finance costs and NCI. Investment thesis As the market digests the Britvic acquisition and re-appraises the merits of being a Pepsi bottling consolidator, we expect the stock to recover its multiple on a higher earnings base. Rating and target price We maintain our Outperform rating. Our target price moves from DKK1,055 to DKK1,000. 15 questions for management Do you expect to be within your long-term organic sales growth ambition range of +4-6% this year?
We incorporate Britvic into our estimates and re-evaluate our investment thesis The proposed acquisition of Britvic marks a significant expansion in soft drinks and opens up the possibility of Carlsberg becoming the go-to Pepsi bottling consolidator. Combinations of bottling territories typically generate material cost synergies Many investors are sceptical on the idea of Carlsberg potentially pursuing more acquisitions (Pepsi territory deals) over share buybacks over the mid-term. But if Coke bottler deal precedence is a good guide, each of these deals is likely to inject credible and material cost synergies. We scan our European Pepsi bottling territory map for potential future deals While de-leverage and Britvic integration will be the priorities in the near-term, we look to future Pepsi bottling territory expansion options. Poland, Greece and Italy look good candidates. A deal driven by the CEO, or CEO hire driven by the deal? Investors have expressed concern that the Britvic deal was pushed by (relatively) new CEO, Jacob Aarup-Andersen, given his investment banking background. While we cannot rule this out, we believe it is equally possible he was hired partly with Pepsi bottling deals in mind. We expect Carlsberg to recover its multiple off the new higher earnings base After incorporating Britvic (and related cost synergies) we forecast FY25e/26e EPS growth of +18% / +14% and sit +4% / +5% ahead of VA consensus respectively. As the market digests the deal and re-appraises the merits of being a Pepsi bottling consolidator, we expect the stock to recover. On our revised estimates, Carlsberg trades at 15.1x/12.8x P/E and 13.3x/12.6x EV/EBIT (CY24/25e). While we acknowledge risk of weather driven weakness in Q2 (we now forecast -2.8% Western Europe LFL Beer vols. vs. VA cons. +1.0%), after Heineken and CCEP updates we believe this is well known by the market. We maintain our Outperform rating; TP to DKK1,055 (from DKK1,030).
Adj. EPS for '25e-'26e raised by 3% and 6%, respectively, as we now include Britvic in our forecasts. BUY (Hold), TP unchanged at DKK 1,000.
We have adjusted our estimates for modest operational changes and updated FX. Accordingly, we raise our TP marginally to DKK1,030 (from DKK1,025). We do not consider the changes to be material; our rating is unchanged.
Carlsberg-Britvic: thoughts on an unpopular proposal On Friday, Britvic announced that it had rejected a 2nd unsolicited cash offer of GBp1,250/share (a c.29% premium to its undisturbed share price) from Carlsberg. Carlsberg''s shares closed down -9% in response. In this report we outline our thoughts on what has thus far been an unpopular proposal. Will Carlsberg return with a higher offer? The proposal to acquire Britvic likely has the backing of the Carlsberg Foundation, we believe there is a good chance that Carlsberg returns with a third (and likely final) offer of around GBp1,350/share. Acquisition of Britvic would materially shift Carlsberg towards Non-Beer Within we outline the likely impact Britvic would have on Carlsberg''s sales / margin profile. In the event of a combination, non-beer volumes would become 1/3rd of the pro-forma group (cf. 19% in CY23) and the UK the largest market by sales (c.22% of pro-forma sales cf. 11% in CY23e). Deal maths: good EPS accretion, solid returns but much higher leverage At a take-out price of GBp1,350 we derive pre-synergy valuation of 15.6x EV/EBIT CY25e for Britvic (cf. 13.5x for Carlsberg). Assuming Carlsberg would be able to achieve cost synergies of c.5% of Britvic sales (there is good reason to think this is possible), we derive CY27e EPS accretion of +11%, ROIC of 7.5% and pro-forma ND/EBITDA of 3.5x (BNNPE def.) in CY24e. We are not great fans of the deal, but the bad news is more than priced into the shares Like most investors (we summarise feedback within), we are not great fans of the proposed deal for we struggle with the idea that acquiring a lower growth asset, at a higher (pre-synergy) valuation than Carlsberg is the best use of capital. However, we are mindful that: 1) the deal may not happen; 2) even if it does, we believe the bad news is more than priced in. We maintain our Outperform rating; but cut TP to DKK1,025 (from DKK1,090) to reflect the risk of higher third offer than we expect.
2024e forecasts unchanged, '25e-'26e up by 1-2%. Q1 was a good start to a busy year. HOLD, TP of DKK 1,000.
Summary of Q124 sales Carlsberg delivered a solid start to the year with Q1 LFL sales growth of +6.4% (+140bp ahead of co. cons). LFL volumes grew +2.0% and were only modestly ahead of consensus (co. cons. +1.7%) with beer volumes ahead +2.6% (VA cons. +2.7%). The primary driver of the Q1 sales beat was therefore LFL rev./HL growth +4.3% (co. cons. +3.2%) which surprised to the upside in both Asia and CEE and India. LFL rev./HL grew by around a mid-single digit percentage in all regions in Q1. News We highlight that Carlsberg expects its FY24 volume growth in China to be broadly aligned with that achieved in Q1 (+5%). Earnings We revise our FY24e / FY25e / FY26e EPS by c.+1%. 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 DKK1,080 to DKK1,090 (reflecting modest upward revision to our EPS forecasts). 15 questions for management Is the improvement that you expect to achieve in your gross margin this year expected to be driven solely through mix, or also through pricing ahead of COGS inflation?
2024-25e earnings estimates raised by 1-2%. We see a decent start to Q1'24 and are 1% above cons. revenues. TP unchanged at DKK 1,000: HOLD.
CARLB CARLB CAB
We have adjusted our estimates to reflect updated FX and modest tweaks to our operational forecasts. We do not consider the changes to be material; our rating is unchanged.
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
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.
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.
