The market being what it is today, when I find a quality name that looks cheap, I get suspicious as to what I may be missing. In the case of Danish brewer Carlsberg (OTCPK:CABGY), I do see risks from the company's overreliance on mature Western European markets, iffy innovation history, and its lack of exposure to markets in Latin America and Africa. On the flip side, the company has done well in China, has chosen to prioritize value over market share in Russia, and has good leverage to growth in multiple Asian markets outside of China. In addition to that, management has built credibility where margin performance is concerned, with about two points of EBITDA margin improvement over the last five years.
Carlsberg's footprint isn't likely to offer the same growth as Heineken's (OTCQX:HEINY), and I likewise don't see the same degree of positive growth drivers as I do for Constellation Brands (STZ), but I do think mid-single-digit revenue growth is achievable, with improved scale and margin leverage opportunities driving FCF margins into the mid-teens and pushing mid-to-high single-digit free cash flow growth. With that, I believe Carlsberg could reasonably be expected to generate high single-digit annualized returns for shareholders from these levels.
Click here to continue:
No comments:
Post a Comment