Bulletin
Investor Alert

New York Markets Open in:

Market Extra Archives | Email alerts

Aug. 24, 2018, 2:56 a.m. EDT

This brewer’s unloved stock looks set for gains as execs target ‘low-hanging fruit’

Danish beer behemoth Carlsberg could be a good buy for long-term investors, analyst says

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Carlsberg A/S Series B (CARL.B)
  • X
    Diageo PLC (DGE)

or Cancel Already have a watchlist? Log In

By Victor Reklaitis, MarketWatch


Getty Images
Brewer Carlsberg’s Tuborg brand is increasingly ‘getting traction.’

Danish beer behemoth Carlsberg could fit the bill for long-term investors thirsting for an undervalued, but promising, consumer stock.

The Copenhagen company /zigman2/quotes/208335740/delayed DK:CARL.B +2.61% appears on track to better profitability, says Morten Imsgard, a senior analyst at Denmark’s Sydbank. “They’ve embarked on this journey to optimize costs, optimize the portfolio, and get rid of noncore brands later than most of the brewers,” he says. “We’re going to see Carlsberg, over a period of some years, close the earnings gap with some of the industry’s best players. They have a lot of low-hanging fruit still to be picked.”

Imsgard sees the operating margin rising by at least two percentage points in coming years, from around 15% now. He’s encouraged by results out this month that showed good growth for Carlsberg’s premium beers, such as Tuborg and Grimbergen, which command higher prices and provide fatter profits. “They are getting some traction,” he observes. “The Tuborg brand is doing very, very well in Asia.”

China and Japan generate about 11% and 5% of Carlsberg’s revenue, respectively. Russia delivers 13%, and Denmark, Germany, the United Kingdom, France, and Italy each provide about 7%, according to FactSet data.

/zigman2/quotes/208335740/delayed CARL.B 864.60, +22.00, +2.61%

Carlsberg isn’t a market darling. Only six of the 25 analyst teams covering the stock rate it a Buy, while 10 say Sell and nine go with Hold. RBC analysts cite limited revenue growth in Eastern and Western Europe in explaining their Sector Perform rating, equivalent to Hold. Recently changing hands at 791 Danish kroner ($123), Carlsberg fetches 22 times forward-year estimated earnings, the same as Guinness parent Diageo /zigman2/quotes/205611832/delayed UK:DGE +7.26%  , and a little above Heineken’s /zigman2/quotes/205347870/delayed NL:HEIA +3.10% 20, and Anheuser-Busch InBev’s /zigman2/quotes/203831500/delayed BE:ABI +4.18% /zigman2/quotes/209225053/composite BUD -0.11% 19. The stock’s dividend yield is 2%.

Imsgard reckons that some investors have lost confidence in the Danish brewer because of its Russian unit’s woes over the past decade, which stemmed from an economic downturn that hit consumer spending, tax hikes on alcohol, and restrictions on ads. “Maybe, just maybe,” he says, Carlsberg’s Russian business has “bottomed out,” as the spotlight has shifted. “They have still a tough situation in Eastern Europe, but the investor focus has almost gone from that region now,” says the Sydbank analyst, who has a Buy rating on Carlsberg but declines to disclose his price target. “It’s mostly, ‘Be more efficient in mature markets and grow your Asian business.’ If things get better in Eastern Europe, that would be a bonus.”

All brewers are dealing with declines in consumption of mass-market brands , and that’s partly why Carlsberg is pushing its premium beers. Imsgard also praises the company’s forays into specialty labels, such as its buyout of craft brewer London Fields and its partnership with Brooklyn Brewery, as well as its success with alcohol-free beers that target health-conscious drinkers.

He says there were moderate sales boosts from this summer’s World Cup soccer extravaganza and Europe’s heat wave, while a ballyhooed, but brief, European shortage of carbon dioxide (used to put the fizz into beer) didn’t have a major impact.

While bullish, Imsgard urges patience on Carlsberg, while predicting further dividend increases and limited acquisitions. “You have to be a long-term investor,” he cautions. “If you’re just looking for an easy profit in the next six months or so, it might not be the right stock.”

This report also appears at barrons.com.

Click to Play

A New Twist for Boston Beer

After a 30-month slide, Boston Beer shares have staged a surprising turnaround.

/zigman2/quotes/208335740/delayed
DK : Denmark: OMX
kr. 864.60
+22.00 +2.61%
Volume: 72,277
Sept. 28, 2020 2:26p
P/E Ratio
20.34
Dividend Yield
2.43%
Market Cap
kr.125.43 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/205611832/delayed
UK : U.K.: London
2,704.50 p
+183.00 +7.26%
Volume: 1.81M
Sept. 28, 2020 1:27p
P/E Ratio
45.61
Dividend Yield
2.58%
Market Cap
£58.89 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/205347870/delayed
NL : Netherlands: Euronext Amsterdam
77.04
+2.32 +3.10%
Volume: 220,176
Sept. 28, 2020 2:27p
P/E Ratio
47.55
Dividend Yield
1.35%
Market Cap
€42.99 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/203831500/delayed
BE : Belgium: Euronext Brussels
46.95
+1.89 +4.18%
Volume: 506,878
Sept. 28, 2020 2:27p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
€88.82 billion
Rev. per Employee
€268,229
loading...
/zigman2/quotes/209225053/composite
US : U.S.: NYSE
$ 52.82
-0.06 -0.11%
Volume: 1.83M
Sept. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
2.03%
Market Cap
$103.20 billion
Rev. per Employee
$316,102
loading...

Victor Reklaitis is a London-based markets writer for MarketWatch. Follow him on Twitter @VicRek.

This Story has 0 Comments
Be the first to comment
More News In
Markets

Story Conversation

Commenting FAQs »

Partner Center

World News from MarketWatch

Link to MarketWatch's Slice.