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Morningstar | Asia Outperforms Again for Carlsberg in 1Q; Raising FVE But Shares Appear Fully Priced. See Updated Analyst Note from 02 May 2019

Carlsberg beat our sales estimates again in the first quarter, posting 6.4% organic growth, supported by volume tailwinds in Asia. We are raising our fair value estimate to DKK 785 from DKK 750 for the B-shares and to $23.50 from $23 for the ADRs, entirely as a result of raising our revenue growth estimates for the Asia segment for this year and next. After a strong rally in the stock year-to-date, we believe Carlsberg is now slightly overvalued, although we acknowledge that the business is performing very well at present.

First quarter organic sales growth of 6.4% maintains the momentum of last year and the upside to our estimates was driven by impressive price/mix of almost 6% in Asia, on top of organic volume growth of almost 10%. The timing of the Lunar New Year undoubtedly contributed to volumes, but certain southeastern Asian markets have been growing consistently for several quarters now, as demonstrated by similarly strong results from Heineken. Carlsberg recently strengthened its position in the region by increasing its ownership of Cambodia's Cambrew to 75%, a transaction that shone through in these sales figures. Given the preponderance of evidence that southeast Asia beer markets are undergoing a period of sustainable growth, we have revised our sales forecasts upwards for this year and next. We now expect 15% organic sales growth in Asia this year and 9% next year, and we continue to see 4.5% as a reasonable assumption for medium-term growth in Asia.

We believe we differ from consensus in medium-term sales growth. We assign Carlsberg a no-moat rating, and recent shelf space losses in Europe support this. Carlsberg has mediocre market shares in Western Europe, which still represents half of its group sales, meaning it lacks the cost advantage of its larger rivals AB InBev and Heineken. As such, sales growth could undershoot those competitors in the longer term, and we fade the current rate of growth to below 4% by the end of our forecast period.