Carlsberg suffers a share-price discount that lacks an easy fix. The Danish brewer binged less on mergers and acquisitions than others as the industry consolidated in recent years. But the result is a narrower geographical footprint. Nor has it fully integrated the operations it has bought.
Full-year results on Feb. 18 were particularly hard for investors to swallow. Carlsberg abandoned some margin targets, and guided for surprisingly weak operating profit this year. The shares fell 7 per cent.
After deals turned rivals into global behemoths, Carlsberg, whose biggest M&A move was helping carve-up Scottish & Newcastle in 2008, is starting to look parochial. Western Europe accounts for 46 per cent of operating profit, with 39 per cent from the continent's East, and just 15 per cent from "Asia" (into which Carlsberg lumps its sole African business). That hurts when Western Europe's economies are as soggy as its summers. Russia has also proved disappointingly competitive, expensive and unwelcoming, thanks to a government crackdown on alcohol.
Even before Monday's swoon, the stock traded far below its peers. At Friday's close, Carlsberg fetched 13.7 times expected earnings, Datastream data shows, compared to Heineken's forward price-earnings ratio of 16.4, and the more-than 18 for SABMiller and ABInBev.
Eleventh-hour deal making may not help much. Carlsberg is steadily expanding in Asia from a low base. But big bid targets are now scarce and expensive. Nor can investors hope for a premium bid for Carlsberg itself. With the shares controlled by a foundation, it is effectively bid-proof.
The only way forward is to run the company better. At least Carlsberg seems to know that. It will spend up to 1.4 billion crowns ($253-million) by 2015 to centralize Western European procurement, production, planning and logistics. Success would lift margins and instil confidence in management. But growth would probably still lag peers.
Carlsberg has a "long-term ambition" to grow earnings per share more than 10 per cent a year. That is both optimistic and still some way behind, say, SABMiller, which Nomura reckons should grow per-share earnings by 13 per cent in 2013 and 2014. Carlsberg investors will be waiting a long time for a re-rating.