Morningstar | Strong 2Q for Carlsberg but Margin Expansion Already Priced In
Carlsberg performed well in the first half of the year and in line with our forecasts. However, increased guidance for the full year of high-single-digit percentage organic operating income growth implies a stronger second half than we had anticipated, and we may raise our near-term estimates slightly. However, we remain comfortable with our medium-term assumptions, and we are maintaining our DKK 705 fair value estimate. While we acknowledge the positive momentum in the business, we believe Carlsberg is fully priced.First-half organic revenue growth of 5.1% implies second-quarter growth of 7.6%, a stellar performance in a challenging environment, and above the current growth rate of other multinational brewers. Driving the growth was Tuborg, Carlsberg's premium brand that increased 8%, and the craft and specialty portfolio (up 26%). Tuborg is performing well in markets such as China, which are trading up to premium brands, but it is worth noting that Heineken's recent collaboration with CR Beer could lead to increased competition in China in coming quarters.
With the business performing in line with our expectations, the upside to our 2018 EBIT forecast comes from management's more aggressive guidance on "Funding the Journey" cost savings. We feel this is more of a timing issue than any incremental value creation. We already assume a medium-term EBIT margin of 16.5%, which implies roughly 2.5 percentage points of margin gains by 2022 from current levels, driven by the cost savings initiatives, and the mix benefits or premiumization demonstrated in these results.
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