Brewing Up Value: A Fundamental Valuation Analysis of Carlsberg A/S

Abstract

This thesis conducts a fundamental valuation analysis of Carlsberg A/S as of the 7th of February 2023. Carlsberg is a Danish brewing company with operations worldwide. Through a valuation based on a strategic and financial analysis, this thesis provides a comprehensive understanding of Carlsberg’s operations, financial health and strategic position.

The strategic analysis draws upon several theories and frameworks, including PESTEL, the five forces model, and the resource-based view. The analysis shows that the brewing industry is characterized by intense competition, high capital expenditures, and strict regulations. The industry is highly influenced by economic, social, and political factors, including changing consumer preferences and environmental changes. Furthermore, the emergence of campaigns against alcohol consumption and new regulatory legislatives poses a significant threat to the brewing industry. However, the alcoholic beverage industry is expected to grow in the coming years, meanwhile Carlsberg possesses a number of competitive advantages, which provides favorable opportunities to prosper.

The financial analysis utilizes the DuPont model to decompose profitability ratios for further analysis. Additionally, a liquidity risk analysis is conducted to assess Carlsberg’s financial health. The analysis reveals that Carlsberg has a stable financial structure and adequate liquidity to meet its financial obligations. The company has strong cash flows from operations, mitigating significant liquidity risks.

The valuation is primarily based on the discounted cash flow model, complemented with a relative multiple valuation. By forecasting Carlsberg’s future cash flows and discounting them with a derived cost of capital, the estimated value of Carlsberg’s shares is equivalent to DKK 1 121,7. Based on the actual share price (DKK 954,2), it is concluded that Carlsberg’s shares are undervalued as of the valuation date. The valuation is followed by a sensitivity analysis, indicating that slight changes in variables such as the terminal growth rate and WACC have a significant impact on the estimated share price. The conclusion drawn from the multiple analysis supports the initial valuation, suggesting Carlsberg’s shares are traded at a discount.