Carlsberg is one of the world’s leading brewers, with a diverse portfolio of international and local beer brands, growing exposure to non-alcoholic beverages, and a long-standing presence in both mature and emerging markets. From its core operations in Western Europe to its expanding footprint in Asia, Carlsberg combines operational efficiency with strategic investments in premiumization, innovation, and sustainability. The commercial beer industry dates back to the Middle Ages—and while consumer preferences continue to evolve, it is hard to imagine a world without beer. The question is: Should this centuries-old business have a place in your modern portfolio?
This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.
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The Business
Carlsberg is a leading global brewing company founded in 1847 and headquartered in Copenhagen, Denmark. Known for its flagship Carlsberg lager, the company operates a wide portfolio of over 140 beer brands, including Tuborg, Kronenbourg 1664, and Grimbergen. It also produces other alcoholic beverages such as Somersby cider, and is expanding into alcohol-free and beyond-beer products. While brewing remains at the heart of its identity, Carlsberg is evolving to include high-potential categories like soft drinks, particularly in markets where it can leverage scale and established routes to market. Its operations are concentrated in three main regions: Western Europe, which accounts for 51% of revenue; Asia with 27%; and Central & Eastern Europe and India with 22%. Carlsberg's competitive moat lies in its strong brand portfolio, which includes some of the most recognized names in the markets where it operates. These brands foster customer loyalty and give the company pricing power. The company concentrates on markets where it holds a number one or two position, allowing it to benefit from the scale advantages typical of the brewing industry. This includes cost efficiencies in sourcing, production, distribution, and marketing. Carlsberg’s route-to-market strategy is tailored to local conditions, enabling it to serve both small on-trade outlets and large retailers effectively. The company also partners with other beverage producers to enhance its offerings and generate supply chain and sales synergies. These partnerships allow Carlsberg to broaden its brand portfolio in local markets, particularly in soft drinks and other non-beer categories, without needing to build everything from scratch. In some regions, Carlsberg bottles and distributes beverages under license, leveraging its existing infrastructure and market presence to create mutual value. These collaborations strengthen customer relationships, improve asset utilization, and extend the company’s reach across different beverage segments.
Management
Jacob Aarup-Andersen serves as the CEO of Carlsberg, a position he assumed in September 2023. Although new to the brewing industry, he brings with him a strong leadership track record from a range of global companies. Prior to joining Carlsberg, he was the CEO of ISS, a global leader in facility management with 360,000 employees across 60 countries. Under his leadership, ISS made significant progress in operational execution and profitability, earning him broad recognition in the business community. Before ISS, he held senior executive roles at Danske Bank and Danica Pension, and earlier in his career, he worked in investment banking and asset management at Goldman Sachs and TPG-Axon Capital. Jacob Aarup-Andersen holds a master’s degree in economics from the University of Copenhagen, where he was known for his extraordinary intellect, earning him the nickname “Guld-Jacob,” or “Gold-Jacob,” during his studies. He also serves on the Board of Directors of SEB Group, a leading Nordic financial services group. Since joining Carlsberg, Jacob Aarup-Andersen has quickly set a tone of ambition and disciplined growth. In his first earnings call as CEO, he emphasized his belief in the power of compounding earnings growth and underscored his commitment to delivering positive earnings growth every year. He also signaled a shift in strategic focus, stating that Carlsberg would place a greater emphasis on long-term growth, ensuring it receives equal weight alongside earnings and free cash flow in executive incentives. Notably, he raised the company’s long-term ambition for organic revenue growth to a compound annual growth rate of 4% to 6%, up from the previous target of 3% to 5%. Although still early in his tenure, Jacob Aarup-Andersen’s leadership at ISS and his clear strategic vision for Carlsberg give me confidence in his ability to guide the company through its next phase of growth.
The Numbers
The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Carlsberg has had some underwhelming years where ROIC fell well below this threshold. However, since 2018, it has consistently hovered around or above 10%, which is encouraging. A further positive sign is that Carlsberg achieved its highest ROIC levels of the past decade in each of the last three years. While ROIC declined slightly in 2024 compared to 2023, management attributed this to hyperinflation in certain markets and the acquisition of Gorkha Brewery in Nepal. Given that ROIC still remains at the second-highest level in ten years, this slight decline is not a concern. Looking ahead, management has indicated that increased commercial investments will support the recovery of gross margins to pre-pandemic levels, which should also contribute positively to ROIC. In fact, management has explicitly stated that their ambition is to deliver sustainable long-term compounding earnings growth, attractive cash generation, and strong ROIC. Based on this, it seems reasonable to expect higher ROIC in the years to come.
The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. These numbers don’t impress, as Carlsberg’s equity has declined in several years. However, the sharp drop in 2022 and 2023 was primarily due to a presidential decree in Russia that temporarily transferred the management of Baltika Breweries to a Russian federal agency for State Property Management. As a result, the investment in Baltika was fully written down across those two years. Equity increased in 2024, as Carlsberg received cash from the Russian disposal—although the amount was significantly below the expected valuation. While equity remains below previous levels, with the Russian operations now exited, there is a reasonable chance we’ll see more consistent year-over-year growth going forward.
Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising that Carlsberg has delivered positive free cash flow in all years over the past decade. The company managed to deliver its second-highest free cash flow ever in 2024, which is encouraging. While the levered free cash flow margin remains below previous highs, it did improve in 2024 - another positive sign. It should also be noted that the lower free cash flow in 2023 was partly due to a one-off payment of a competition fine in Germany, which is not expected to recur. Carlsberg follows a clear and consistent capital allocation strategy that has remained unchanged for the past ten years. The first priority is to reinvest in the business to support long-term organic growth and value creation. The second is to reduce debt when the debt-to-EBITDA ratio exceeds 2,5x. Third, the company aims to maintain a reliable dividend payout, and management has reiterated their commitment to the dividend policy - even during periods when the balance sheet is slightly more stretched than usual. The fourth and fifth priorities involve returning excess cash to shareholders and pursuing value-accretive acquisitions. Hence, investors can expect that free cash flow will be used to support long-term value creation while also receiving dividends as free cash flow grows and leverage remains low. The free cash flow yield is currently at one of its highest levels in the past decade, which suggests that the shares are trading at an attractive valuation. However, we will revisit valuation later in the analysis.
Debt
Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can be repaid within a period of three years, which is determined by dividing the total long-term debt by earnings. Upon analyzing Carlsberg’s financials, it is evident that the company had 3,8 years of earnings in debt by the end of 2024. This is slightly above the three-year threshold, indicating that debt is something that needs to be monitored. It should also be noted that debt will increase significantly in 2025 due to the acquisition of Britvic. However, based on Carlsberg’s capital allocation strategy, we know that the company prioritizes reducing debt when the debt-to-EBITDA ratio exceeds 2,5x. Management has stated that they aim to generate as much cash as possible from the total business to reduce financial leverage quickly and expect the debt-to-EBITDA ratio to fall below 2,5x no later than the end of 2027. While debt is currently higher than normal, it doesn’t concern me, as there is a clear explanation for the increase and management has been transparent about their priority to pay it down.
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Risks
Macroeconomic factors represent a significant risk for Carlsberg, particularly given the company’s global footprint and exposure to both mature and developing markets. In recent years, the macroeconomic environment across Carlsberg’s key regions has been shaped by elevated geopolitical tensions, inflationary pressures, and sluggish economic growth. Events such as the war in Ukraine, ongoing instability in parts of Asia, and broader global conflicts have added uncertainty to both consumer markets and supply chains. These conditions affect Carlsberg in multiple ways. The most immediate impact is on consumer sentiment and spending. Management has noted a decline in beer volumes, particularly in Western Europe and Central & Eastern Europe, attributing it to soft consumer sentiment. High inflation and stagnant wages are weighing on household budgets, leading consumers to cut back on discretionary spending. While alcoholic beverages are often considered resilient, premium segments in particular remain vulnerable during periods of economic strain. Carlsberg has also flagged concerns about the macroeconomic environment in Asia, citing weak consumer sentiment in China and Southeast Asia. Slowing economic momentum in these regions could hamper volume growth and limit the company’s pricing power. ising interest rates, especially in Europe, add further pressure by eroding disposable incomes and increasing financial strain on households. On the operational side, macroeconomic volatility influences input costs. Fluctuations in raw material and packaging prices, often tied to global commodity markets, can compress margins. While Carlsberg does have some pricing power, raising prices becomes more difficult when consumer demand is already under pressure. Finally, governments facing fiscal pressure may seek additional revenue through higher excise duties or other taxes on alcohol, adding another layer of uncertainty.
Shifting consumer trends pose a growing strategic risk to Carlsberg, as evolving preferences and cultural shifts increasingly shape purchasing habits across all demographics - especially among younger consumers. Unlike traditional industry risks such as commodity prices or macroeconomic volatility, changes in consumer behavior are harder to predict and often require companies to fundamentally rethink their product offerings and brand positioning. Consumer behavior is changing across several key dimensions, including consumption occasions, alcohol preferences, and purchasing patterns. One of the most notable shifts is the growing emphasis on healthier lifestyles and wellness, particularly among younger generations like Gen Z. This demographic is drinking less alcohol than previous generations and showing a clear preference for low-alcohol, alcohol-free, and functional beverages that align with their health-conscious values. As a result, demand for traditional beer may decline unless producers adapt accordingly. At the same time, the increasing use of GLP-1 drugs - originally developed for diabetes and now widely used for weight loss - has been shown to reduce alcohol cravings, representing a potential long-term headwind for the alcohol industry. Additionally, rising cannabis use among younger consumers presents a direct cultural and behavioral substitute for alcoholic beverages, further challenging demand for Carlsberg’s core products. Failing to respond effectively to these shifts could lead to declining volumes and market share, particularly in mature markets where beer consumption is already flat or declining. While Carlsberg has made progress in expanding its portfolio to include non-alcoholic and beyond-beer offerings, the pace and success of this innovation will be critical to staying competitive. Ultimately, these shifting trends are not merely cyclical but structural, representing a long-term risk to the growth prospects of traditional beer companies like Carlsberg.
Competition poses a considerable risk to Carlsberg’s long-term performance, particularly as the beverage industry becomes increasingly fragmented and dynamic. Consumer preferences continue to shift toward more diverse, premium, and health-conscious offerings, making the market more complex and harder to navigate. This evolving landscape has lowered barriers for smaller or more agile competitors, which can divert both customers and consumers away from Carlsberg’s products. In many of Carlsberg’s key markets, competition is intense - not only from global brewers like AB InBev and Heineken, but also from regional players, local craft breweries, and rapidly growing non-alcoholic beverage brands. To defend its market position, Carlsberg may be forced to lower prices, invest more heavily in marketing, or increase capital expenditures to stay competitive. These responses could make it harder for the company to pass rising input costs on to consumers, thereby pressuring margins and limiting profitability. In addition, the growing importance of innovation and brand differentiation introduces its own set of challenges. While Carlsberg is actively investing in new product development - particularly in alcohol-free beverages and beyond-beer categories - there is no guarantee that these innovations will resonate with consumers. If new products fail to gain traction, or if competitors respond more quickly or effectively to emerging trends, Carlsberg risks losing both relevance and market share. Ultimately, the combination of rising competitive intensity and the execution risk tied to innovation could significantly impact Carlsberg’s financial performance and operational outlook.
Reasons to invest
Carlsberg expanding its business is a compelling reason to invest. The company has recently made several strategic moves that strengthen its long-term growth potential and diversify its portfolio beyond traditional beer. Most notably, the acquisition of Britvic, a leading European soft drinks company and PepsiCo bottler in the UK and Ireland, significantly increases its exposure to the structurally growing non-alcoholic beverage category. The Britvic acquisition is expected to be EPS-accretive from 2025 and margin-accretive by 2027, supported by GBP 100 million in expected synergies across procurement, logistics, supply chain, and administration. Beyond cost efficiencies, the deal unlocks meaningful commercial opportunities - such as cross-selling between Carlsberg’s beer portfolio and Britvic’s soft drinks brands - particularly in the UK, where the company is now a leading supplier of both beer and soft drinks. Carlsberg is also expanding in other growth markets. It will take over the Pepsi bottling franchise in Kazakhstan and Kyrgyzstan in 2026, doubling its business in Kazakhstan and investing more than EUR 100 million in a new soft drinks facility. The investment is expected to generate a double-digit ROIC from year one and become accretive to group ROIC by year three. These developments not only deepen Carlsberg’s partnership with PepsiCo - making it PepsiCo’s largest partner in Europe - but also strengthen its position in fast-growing emerging markets. In addition, Carlsberg has acquired minority stakes in craft breweries in Denmark and France, reinforcing its presence in the super-premium beer segment. With decades of experience operating integrated beer and soft drinks businesses, the company is well-positioned to extract synergies across the value chain - from shared production and packaging formats to combined sales, logistics, and customer service. These initiatives align with Carlsberg’s Accelerate SAIL strategy, which emphasizes portfolio diversification, stronger partnerships, and long-term value creation. In a slow-growth beer market, expanding into soft drinks and high-potential regions increases the company’s resilience, widens its addressable market, and opens up new avenues for revenue growth.
Carlsberg’s focus on premiumization and beyond beer categories is a compelling reason to invest, as both are positioned as long-term growth drivers within the company’s Accelerate SAIL strategy. While premium beer products currently account for just 19% of Carlsberg’s total volumes, management has made increasing this share a strategic priority. The company plans to allocate a larger portion of its marketing and innovation budget toward premium brands and has already begun redirecting internal resources to support their growth. This commitment is supported by recent performance: Carlsberg’s premium brand portfolio outperformed its mainstream beer business in both 2023 and 2024. Premium products typically carry higher price points and stronger profitability. As a result, accelerating premium growth creates a virtuous circle of improved revenue per hectoliter, higher margins, and greater reinvestment capacity. This positions Carlsberg for more sustainable and profitable growth in the years ahead. Management views premiumization as a structural value driver and has committed to supporting it through continued innovation and commercial focus. Beyond beer is another strategic pillar, encompassing categories such as cider, alcohol-free brews, kombucha, tonic water, and herbal drinks. Brands like Somersby and Garage are central to this segment, and Carlsberg plans to scale them more aggressively through footprint expansion, increased brand investment, and innovation. Non-alcoholic beer is also a fast-growing area. Alcohol-free brews grew by 6% in 2024, driven by broad-based demand in Western Europe and Central & Eastern Europe. Carlsberg is extending both its international and local beer brands into the alcohol-free space. Management sees this as a generational and structural trend, underpinned by growing health awareness and changing social norms, particularly among younger consumers. Like premium products, alcohol-free brews generally carry higher margins and contribute positively to mix and profitability. Taken together, premium, beyond beer, and alcohol-free products are all growing faster than mainstream beer. Management is intentionally directing a greater share of its marketing, innovation, and sales budget toward these categories, reflecting their long-term strategic importance and potential to drive shareholder value.
Growth in Asia is a reason to invest in Carlsberg. The region plays a central role in the company’s long-term strategy and has consistently been a key driver of both volume and value growth. Despite macroeconomic challenges in 2024 - particularly in China and Vietnam - Carlsberg continues to see strong structural opportunities across the region. In China, Carlsberg recently inaugurated its 27th brewery in Foshan, with an annual capacity of 5 million hectoliters. This state-of-the-art facility supports future growth and underlines the company’s long-term commitment to the market. While short-term performance has been affected by weak consumer sentiment, Carlsberg is continuing to strengthen its presence in major cities and expand in western regions through enhanced route-to-market capabilities. Management believes that any recovery in Chinese consumer activity - particularly if supported by fiscal stimulus - could unlock meaningful upside. Vietnam is another core market where Carlsberg is executing a multi-year strategy to grow market share and expand its brand portfolio. The company is increasing investment in key brands, deepening its regional presence, and building commercial capabilities. Despite recent headwinds, Vietnam remains an underpenetrated market with strong fundamentals and long-term growth potential. India represents one of the most promising opportunities in Carlsberg’s global portfolio. In 2024, the company acquired full ownership of its Indian operations, giving it the flexibility to accelerate expansion. Carlsberg now operates seven breweries in India. With a population of roughly 800 million people of legal drinking age - and 20 million more entering that group annually - India offers significant long-term potential. Beer consumption is growing, particularly in the strong beer segment, which now accounts for 80 percent of the market. Carlsberg’s brands Tuborg and Elephant are well positioned, with Tuborg being the largest international brand and the second-largest overall in the country. In Nepal, Carlsberg has also gained near-total control of Gorkha Brewery, a highly profitable business with a 60 percent market share and a strong portfolio. While smaller in size, Nepal adds depth to Carlsberg’s South Asia footprint and offers additional growth opportunities. Together, these developments underscore Carlsberg’s expanding presence in Asia, supported by long-term investments in capacity, brand building, and commercial execution. The region remains a structural growth engine for the group and a key contributor to both volume and margin expansion in the years ahead.
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Valuation
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.
The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 51,60, which is from 2024. I have selected a projected future EPS growth rate of 7%. Finbox expects EPS to grow by 11,8% annually over the next five years, but I'm not as optimistic.. Additionally, I have selected a projected future P/E ratio of 14, which is twice the growth rate. This decision is based on Carlsberg's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be DKK 351,27. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Carlsberg at a price of DKK 175,63 (or lower, obviously) if we use the Margin of Safety price.
The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 13.570, and capital expenditures were 4.668. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 3.268 in our calculations. The tax provision was 1.982. We have 132,1 outstanding shares. Hence, the calculation will be as follows: (13.570 – 3.268 + 1.982) / 132,1 x 10 = DKK 929,90 in Ten Cap price.
The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Carlsberg's Free Cash Flow Per Share at DKK 67,40 and a growth rate of 7%, if you want to recoup your investment in 8 years, the Payback Time price is DKK 739,92.
Conclusion
I believe that Carlsberg is an intriguing company with strong management. It has a moat through its portfolio of well-known brands, which are popular in key markets. Carlsberg has delivered a ROIC above 10% since 2019, and I expect it to remain above that level as management continues to focus on ROIC improvement. Free cash flow reached its second-highest level ever in 2024, and the company follows a clear capital allocation strategy that should benefit investors once debt returns to a more comfortable level. Macroeconomic conditions pose a risk to Carlsberg due to their impact on consumer sentiment, input costs, and pricing power. High inflation, rising interest rates, and geopolitical tensions have softened demand. Shifting consumer trends are also a concern, as younger generations are drinking less alcohol and showing a growing preference for low-alcohol, alcohol-free, and functional beverages. These structural shifts - along with GLP-1 drug usage and increasing cannabis consumption - could reduce demand for traditional beer and put pressure on Carlsberg’s core business. Competition is another risk, as the beverage industry is becoming increasingly fragmented and dynamic. With new entrants and changing consumer expectations, Carlsberg may need to increase spending on marketing and innovation to protect market share, which could put pressure on margins. On the positive side, expanding its business is a reason to invest in Carlsberg. Strategic acquisitions like Britvic not only diversify the company’s portfolio and unlock synergies but also strengthen its presence in key growth markets. Premiumization and beyond beer are also attractive areas of focus, as these higher-margin, fast-growing categories are central to Carlsberg’s long-term strategy. Additionally, growth in Asia remains a compelling part of the investment case, with operations expanding in high-potential markets like China, Vietnam, India, and Nepal. These regions offer structural growth opportunities in both volume and value. Carlsberg is unlikely to make investors rich overnight, but I believe it is a high-quality business. Buying shares below the Ten Cap price of DKK 929 could be a good sleep-well-at-night investment to hold in one’s portfolio.
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