E-Malt.com News article: Russia: Carlsberg’s Russian problems not close to an end yet

Carlsberg's hangover never ends. Four years ago the Danish beer giant bet the ranch on Russia, buying out Scottish & Newcastle's 50% stake in Baltika, the largest domestic brewer. At the time, it seemed a shrewd move but the bet quickly went sour—and there was little in this week’s half-year results to suggest investors can expect an imminent recovery, The Wall Street Journal posted on August, 15.

Carlsberg's problems started in 2009 when rising food prices squeezed disposable incomes and excise tax increases in 2010 and 2011 pushed up beer prices by 30%. Per capita consumption is now 15% below 2007's peak, notes Canadean.

True, there are some signs the market may be bottoming out: It grew 2% in volume terms in the first half, boosted by rising salaries and improving consumer confidence. That is the first time the market has grown since the first half of 2008. Carlsberg itself has started to recover, with its share rising modestly to 37.3% in the second quarter, according to Nielsen.

But this relief may be short-lived. Moscow has just banned beer advertising on television, radio, billboards and the Internet. Carlsberg is hoping this will boost strong brands like Baltika. But rivals may respond to the blackout by competing more aggressively on price. At the same time, the merger of Russia's fourth and fifth largest brewers, Efes and SABMiller, become the second-largest brewer with 18% of the market could point to tougher competition ahead.

Meanwhile, Carlsberg's bad luck continues: The improvement in Russia in the first half was offset by a 5% second-quarter decline in its core Northern and Western European markets, where the cold summer has zapped thirst for beer. That has left Carlsberg forecasting only slight earnings growth in 2012.

Carlsberg appears cheap. It trades at 11.8 times forecast 2013 earnings based on consensus estimates, well below its closest peer Heineken, at 13.7 times, and making it the lowest valued stock in the European consumer sector. But until there is much clearer evidence that Carlsberg's fortunes in Russia are recovering, it is likely to stay that way.


17 August, 2012