Is Carlsberg on track for a margin recovery? According to UBS, Carlsberg’s renewed focus on supply chain efficiencies is expected to rejuvenate the company’s gross margins to pre-pandemic levels, leading to an upgrade to “neutral.”
In a significant move by UBS, Danish brewing giant Carlsberg has been upgraded to “neutral” from “sell,” reflecting a positive shift in the financial institution’s outlook on the beer maker’s economic prospects. The adjustment comes with an expectation that Carlsberg will exhibit improved flexibility in managing its growth and margins, positioning the company for a potential recovery.
The impetus behind UBS’s reassessment lies in Carlsberg’s intensified drive towards optimizing its supply chain. This strategic refocus is anticipated to reestablish the gross margins that the company enjoyed prior to the pandemic’s disruption. By reinvigorating its margins, Carlsberg could then allocate additional resources toward marketing, targeting around 10% of net sales, as well as ramp up its sales expenses.
This strategic allocation is not merely about expenditure but is designed to stimulate robust top-line growth for Carlsberg. While UBS expresses a degree of caution regarding the outlook for Carlsberg’s premium brands in China, given the competitive landscape, the company’s investment in marketing and sales is posited as a means to deepen market penetration, particularly through its more affordably priced brands.
Moreover, UBS points to the potential for Carlsberg to accelerate its growth in other key markets, such as Vietnam and India, which could emerge as significant contributors to the company’s expansion.
Reflecting this more optimistic stance, UBS has raised its target price for Carlsberg by 25%, setting it at DKK 990. The consensus among analysts also appears buoyant; out of 25 analysts covering Carlsberg, the majority rate the stock as “strong buy” or “buy,” with the remainder suggesting to “hold.”
These findings and projections from UBS imply that Carlsberg is approaching a turning point where strategic management decisions and market adaptations could pave the way for a resurgence. As Carlsberg works towards margin recovery and market growth, the actions it undertakes now may well determine the trajectory of its financial performance in the near future.
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