Royal Unibrew: Pouring Value into Your Portfolio

Royal Unibrew is a leading regional multi-beverage company with a strong presence across the Nordic and Baltic countries, as well as niche positions in Western Europe and Canada. With a diverse portfolio built on strong local brands and enhanced through partnerships with global players like PepsiCo and Heineken, Royal Unibrew blends local heritage with strategic innovation. Its focus on no/low sugar soft drinks, ready-to-drink alcoholic beverages, enhanced drinks, and premium brands positions the company for long-term growth in a changing consumer landscape. The question remains: Does this resilient beverage company deserve a place in your 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.

For full disclosure, I should mention that I do not own any shares in Royal Unibrew at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Royal Unibrew, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Royal Unibrew is a leading regional multi-beverage company headquartered in Faxe, Denmark, with core operations in Northern and Western Europe and a growing international presence. The company was established in 1989 through the merger of Faxe, Ceres, and Thor breweries, later expanding with Albani in 2000 and adopting the Royal Unibrew name in 2005. It offers a wide range of beverages, including beer, soft drinks, malt beverages, energy drinks, cider, juice, water, wine, and spirits. Among its well-known brands are Royal Beer, Lapin Kulta, Faxe Kondi, Ceres, Faxe, Original Long Drink, Vitamalt, and Lorina. Royal Unibrew also partners with major players like PepsiCo, Heineken, and Diageo to produce and distribute their products in selected markets. The company operates in three business segments: Northern Europe, Western Europe, and International, with Northern Europe being the largest. Its business model emphasizes local engagement through a decentralized commercial structure, while centralized functions like procurement and IT ensure group-wide efficiencies. With 20 production facilities across 10 countries, Royal Unibrew follows a direct-to-customer distribution model in its core markets, supporting high-quality delivery and strong customer relationships. Its multi-beverage strategy spans alcoholic and non-alcoholic products, including no/low sugar and no/low alcohol options, enhancing scalability and efficiency across production, logistics, and sales. Royal Unibrew is also committed to sustainability, aiming for net-zero emissions by 2040 and targeting full circularity in packaging materials. Royal Unibrew's competitive moat is rooted in its portfolio of strong local brands, which have deep cultural connections with consumers and foster high brand loyalty. Its multi-beverage platform allows it to serve a wide variety of drinking occasions, reducing reliance on any single category and creating operational synergies. A highly efficient and flexible route-to-market model ensures that products reach customers and consumers effectively, while the decentralized organization enables swift local adaptation to changing market conditions. Strategic partnerships with global companies like PepsiCo, Heineken, and Diageo further strengthen its offering.

Management

Lars Jensen serves as the CEO of Royal Unibrew, a role he assumed in September 2020 after a long career within the company. He first joined Royal Unibrew in 1993 and has held a variety of roles across the organization, gaining extensive operational and strategic experience. He holds a Diploma in Business Economics, Informatics, and Management Accounting from Copenhagen Business School. Throughout his career at Royal Unibrew, Lars Jensen has demonstrated a strong commitment to decentralized management. He believes that local teams in each market are best positioned to understand consumer preferences and make decisions about product offerings. Rather than imposing top-down directives, he views his role - and that of top management - as setting the overall strategic direction while allowing local managers the autonomy to execute based on their market knowledge. His commitment to this leadership style is underscored by his decision to leave Royal Unibrew for a period of about 1,5 years when he felt the company was becoming overly centralized. During his time away, he served as CEO of Næstved Boldklub, a Danish football club, an experience he has credited with further shaping his leadership philosophy. Under Lars Jensen’s leadership, Royal Unibrew has experienced significant growth, nearly doubling in size within the first four years of his tenure. The company has made several strategic acquisitions during this period, expanding its presence across Europe and internationally. His leadership approach emphasizes local empowerment, strategic boldness, and operational agility, traits that have strengthened Royal Unibrew’s ability to navigate a challenging and competitive beverage landscape. Given his extensive experience within Royal Unibrew, his clear vision for decentralized leadership, and his willingness to make bold strategic moves, I believe Lars Jensen is well-positioned to continue leading Royal Unibrew successfully into the future.

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. Royal Unibrew has delivered a ROIC above 10% for the past ten years, which is impressive. However, ROIC has decreased over the past three years, mainly due to several acquisitions. Royal Unibrew has made major acquisitions in recent years, such as Vrumona in the Netherlands and Birrificio San Giorgio in Italy. When a company buys another business, it often pays more than just the value of that company’s physical assets like factories and equipment. The extra amount paid - known as goodwill - reflects things like brand value, customer relationships, and future earning potential. This extra cost gets added to Royal Unibrew’s balance sheet and increases the total amount of capital invested in the business. While these acquisitions are expected to strengthen the company and boost profits over time, it usually takes a while before the newly acquired businesses fully contribute to earnings. In the meantime, the larger investment base can make Royal Unibrew’s ROIC appear lower than before. In addition to acquisitions, Royal Unibrew has increased capital expenditures over the past three years. While these investments are aimed at long-term sustainability and efficiency, they have a short-term impact on ROIC because the benefits are realized over a longer time horizon. Importantly, Royal Unibrew emphasizes ROIC as a key financial metric and has stated that they are committed to driving long-term value by maximizing returns on invested capital. Management has also indicated they expect ROIC to improve going forward.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Royal Unibrew has delivered mixed numbers in the past, but its equity has increased every year since 2017, which is encouraging to see. The significant increase in equity in 2022 is primarily due to acquisitions. In that year, Royal Unibrew made several major acquisitions, including Vrumona in the Netherlands and Birrificio San Giorgio in Italy. When a company makes an acquisition, it often pays more than just the value of the physical assets it is buying, because it is also paying for things like brand reputation, customer relationships, and future earning potential. This extra amount is recorded as goodwill, which increases the company's equity. As a result, Royal Unibrew’s equity grew significantly in 2022 due to the goodwill created from these acquisitions.

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 Royal Unibrew has achieved positive free cash flow every year for the past decade. The low free cash flow in 2022 was due to the acquisitions of Vrumona in the Netherlands and Birrificio San Giorgio in Italy, but free cash flow has since increased, reaching its second-highest level ever in 2024, despite elevated capital expenditures. For context, capital expenditures in 2024 more than doubled compared to 2020, when Royal Unibrew achieved its highest free cash flow. Royal Unibrew is currently spending more on capital expenditures than usual, and this elevated spending has also impacted the levered free cash flow margin. Recent acquisitions like the Italian brewery and Vrumona required additional investments to bring operations up to group standards, particularly by expanding packaging capabilities. Beyond acquisition-related investments, the company is also expanding production capacity elsewhere by building a new PET bottling line in Denmark, adding a canning line in Italy, and significantly expanding warehouse capacity to reduce reliance on external storage. This elevated level of capital spending is expected to continue through 2025 and 2026 before normalizing. Management expects these investments to deliver strong returns over time by improving efficiency, supporting growth, and reducing complexity across the business. Hence, both free cash flow and the levered free cash flow margin should increase in the future. Royal Unibrew uses free cash flow to invest in the business, make acquisitions, pay dividends, and repurchase shares. As Royal Unibrew grows its free cash flow, investors can expect to be rewarded through higher dividends and increased share buybacks. The free cash flow yield is currently at its highest level since 2018, indicating 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 Royal Unibrew's financials, it is evident that the company has 2,98 years of earnings in debt. This is under the three-year threshold, indicating that debt is not something I am worried about. While I use a debt-to-earnings ratio when considering whether a company has high debt, Royal Unibrew uses a debt-to-EBITDA ratio. The company has mentioned that the debt-to-EBITDA ratio was 2,2x at the end of 2024, which is below their financial target of a maximum of 2,5x EBITDA. Hence, we can expect debt levels to remain around or below this target in the future. It is also encouraging that management prioritized paying down debt in 2024, successfully bringing the ratio below their target by the end of the year.

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Risks

Shifting consumer trends is a risk for Royal Unibrew. Beer consumption is in structural decline across Europe, with volumes falling between 0% and 2% annually depending on the country. While there may be fluctuations between months and quarters, the long-term trend shows that beer is increasingly challenged. At the same time, the broader consumer movement toward healthier living continues to gain momentum. Every year, more consumers shift toward products with fewer calories and lower alcohol content, and this trend shows no sign of slowing down. Shifting consumer preferences pose a growing strategic risk to Royal Unibrew, as evolving lifestyles and cultural shifts are increasingly shaping purchasing habits across all demographics, especially among younger consumers. One of the most notable changes is the growing focus on health and wellness, particularly among Gen Z. This generation drinks less alcohol than previous ones and increasingly prefers low-alcohol, alcohol-free, and functional beverages that align with their values. As a result, demand for traditional beer may continue to weaken unless producers adapt. Other emerging trends may also weigh on future alcohol consumption. The growing use of GLP-1 drugs - originally developed for diabetes but now widely used for weight loss - has been shown to reduce alcohol cravings. Rising cannabis use among younger consumers presents another behavioral and cultural substitute for alcohol, further pressuring demand for some of Royal Unibrew's core products. Changes in consumer behavior are harder to predict and often require companies to fundamentally rethink their product offerings and brand positioning. 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 falling. While Royal Unibrew has taken steps to broaden its portfolio beyond beer, including expanding into non-alcoholic beverages and new categories, the pace and success of this innovation will be critical for maintaining competitiveness.

Macroeconomic factors pose a significant risk for Royal Unibrew. Higher interest rates and the rising cost of living have already influenced consumer behavior across the company's core markets. Royal Unibrew has observed that consumers are spending less in bars and restaurants (the on-trade channel) and are also becoming more cautious with their spending in supermarkets (the off-trade channel), increasingly seeking out promotions and private-label alternatives. This shift toward lower-priced products puts pressure on Royal Unibrew’s ability to maintain volumes and protect margins, especially in a competitive retail environment. If we experience an extended period of low economic growth, it could further stagnate consumer spending and make it even more difficult for companies like Royal Unibrew to grow sales and maintain profitability. In such a scenario, consumers may prioritize essential goods over discretionary purchases like beverages, leading to reduced demand for many of Royal Unibrew’s products. The company expects these trends—modest growth in on-trade, heavy promotional pressure in off-trade, and cautious consumer sentiment—to persist into 2025, particularly in the Nordic countries where consumer confidence remains well below levels seen two to three years ago. Royal Unibrew’s business is naturally tied to economic cycles, and the company acknowledges that broader macroeconomic and geopolitical uncertainties could further impact earnings. Factors such as changes to free trade agreements, prolonged periods of low economic growth, public health threats, or geopolitical instability could result in lower consumption or shifts in product mix toward lower-margin formats.

Commodity prices represent a significant risk for Royal Unibrew. Like many companies in the beverage industry, Royal Unibrew relies heavily on raw materials such as barley, hops, sugar, aluminum (for cans), and energy sources to produce and distribute its products. These inputs are global commodities, meaning their prices are influenced by a wide range of factors outside the company’s control, including supply and demand imbalances, geopolitical tensions, trade disruptions, currency fluctuations, and extreme weather events. Royal Unibrew itself categorizes commodity price risk as having both a high financial impact and a high likelihood of occurring. When the cost of essential raw materials rises, Royal Unibrew faces higher production costs. If the company is unable to pass these higher costs on to consumers through increased selling prices - either because of competitive pressures or weak consumer demand - its profit margins and overall earnings will be negatively affected. Looking ahead, this risk could become even more pronounced. Management has noted that while the impact of climate change and climate-related legislation on input costs has been limited so far, it is expected to grow in the coming years. Climate-related disruptions, such as droughts affecting barley harvests or rising energy costs tied to carbon pricing regulations, could further pressure commodity supply chains and drive up costs. Additionally, Royal Unibrew operates in markets where price competition is already intense, especially in the off-trade channel (supermarkets and retail). In these markets, the ability to raise prices in response to higher costs may be constrained by consumer sensitivity to price increases, particularly during periods of low economic growth. This dynamic heightens the risk that commodity price inflation will have to be absorbed by the company, further squeezing margins.

Reasons to invest

Royal Unibrew’s portfolio is a key reason to consider investing in the company. It is built around a strong foundation of local heritage brands, further enhanced through partnerships with internationally recognized names like PepsiCo, Heineken, and Diageo. This combination gives Royal Unibrew a broad and flexible product offering that is well-adapted to local preferences across both alcoholic and non-alcoholic categories. One of Royal Unibrew’s core strengths is its focus on identifying and capturing growth pockets across different beverage categories, rather than being tied to traditional market definitions like beer or soft drinks alone. For example, when the company re-entered the sports drink category in Denmark with Faxe Kondi Pro, it quickly captured a 30% market share, displacing established competitors through strong marketing and execution. Similarly, in France, Royal Unibrew is one of the few beverage companies still growing in 2024, driven by its strong positions in energy drinks and lemonade - two of the few categories experiencing growth. This strategic flexibility sets Royal Unibrew apart from many other beverage companies that are often slower to shift their focus. Management has emphasized the importance of "living the categories of today" rather than being anchored to traditional product lines. As consumer preferences evolve - whether toward healthier options, new flavors, or functional beverages - Royal Unibrew’s diverse and adaptable portfolio positions it well to stay relevant and capture emerging demand. In addition, Royal Unibrew’s portfolio strategy allows it to optimize its presence across both the On-Trade (bars, restaurants) and Off-Trade (supermarkets, retail) channels depending on local market dynamics. In periods of strong economic growth, the company can lean into premium brands and increased marketing investments. In tougher economic conditions, it can shift its focus toward mainstream and value-oriented offerings, supported by operational efficiency. By maintaining strong local brands, building partnerships with global players, and continuously innovating across multiple beverage categories, Royal Unibrew has established a competitive and resilient portfolio that supports both its growth and profitability.

Acquisitions are a major reason to consider investing in Royal Unibrew. Mergers and acquisitions have always been a core part of the company’s strategy, consistently serving as a key driver of growth, market expansion, and long-term value creation. Royal Unibrew’s approach to acquisitions is both disciplined and diversified, categorizing them into four types: bolt-on acquisitions, brand/category acquisitions, platform acquisitions, and asset acquisitions. Each type plays a strategic role, whether it’s strengthening an existing market position, entering a new geographic area, expanding into new beverage categories, or improving production and logistics capabilities. In recent years, Royal Unibrew has focused heavily on platform acquisitions - larger moves that establish meaningful presences in new markets such as the Netherlands, Italy, and the BeNeLux region. Although platform acquisitions typically take longer to integrate and realize synergies, they have historically delivered the most significant value over time. For example, the acquisitions of Vrumona in the Netherlands and the San Giorgio facility in Italy not only expanded Royal Unibrew’s geographic footprint but also added important production capacity, strengthening the company’s international supply chain and supporting organic growth across markets. While recent acquisitions have initially diluted group EBIT margins - mainly because the acquired businesses operated at lower profitability levels compared to Royal Unibrew’s legacy operations - management remains focused on gradually improving margins through integration, operational efficiency, and harvesting scale benefits. Over time, these efforts should enhance the profitability of the acquired businesses and support overall earnings growth. Beyond the operational benefits, acquisitions have also allowed Royal Unibrew to diversify its brand portfolio, enter fast-growing beverage categories, and strengthen its route-to-market capabilities. The acquisition of local Nordic brands from Pernod Ricard, including the strong Minttu brand, is a good example of how Royal Unibrew is positioning itself to capture additional growth in adjacent categories like spirits and liqueurs.

Royal Unibrew’s focus on four key growth areas - no/low sugar soft drinks, ready-to-drink (RTD) alcoholic beverages, enhanced drinks, and premium brands - is an important reason to consider investing in the company. These categories are expected to grow structurally faster than the broader beverage market and generally offer higher profit margins than Royal Unibrew’s current group average. By concentrating resources on these areas, the company is positioning itself to capture long-term profitable growth in a changing consumer landscape. The strategic shift toward healthier and higher-quality products aligns closely with evolving consumer preferences. Across both non-alcoholic and alcoholic segments, there is increasing demand for lower-sugar options, functional beverages like enhanced waters and vitamin-infused drinks, and premium experiences. Royal Unibrew has already demonstrated success in capitalizing on these trends. For example, no/low sugar soft drinks have become a significant and growing part of the company’s carbonated soft drink portfolio, while enhanced beverages like Sourcy Vitamin Water in the Netherlands and Faxe Kondi Pro in Denmark have gained strong traction. Royal Unibrew’s emphasis on premiumization is also an important driver. Premium brands, whether in malt beverages like Ceres Strong Ale in Italy or in enhanced water products, allow the company to increase average selling prices and expand margins. Importantly, Royal Unibrew is not just participating in these categories but actively investing behind them. The company is directing a substantial portion of its operating expenses - such as sales and marketing investments, innovation efforts, and manpower - toward building strong positions in its prioritized growth categories. This disciplined focus increases the chances of Royal Unibrew gaining meaningful share in segments that are structurally expanding.

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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 29,20, which is from 2024. I have selected a projected future EPS growth rate of 7%. Finbox expects EPS to grow by 6,7% a year in the next five years. Additionally, I have selected a projected future P/E ratio of 14, which is twice the growth rate. This decision is based on Royal Unibrew'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 198,78. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Royal Unibrew at a price of DKK 99,39 (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 2.189, and capital expenditures were 761. 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 533 in our calculations. The tax provision was 401. We have 50,1 outstanding shares. Hence, the calculation will be as follows: (2.189 – 533 + 401) / 50,1 x 10 = DKK 410,58 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 Royal Unibrew's Free Cash Flow Per Share at DKK 28,53 and a growth rate of 7%, if you want to recoup your investment in 8 years, the Payback Time price is DKK 313,20.

Conclusion

I believe that Royal Unibrew is an intriguing company with strong management. The company has built a moat through its portfolio of strong local brands, which have deep cultural connections with consumers and foster high brand loyalty. It has consistently achieved a high ROIC, and while ROIC has been lower over the past three years due to acquisitions and elevated capital expenditures, it is expected to return to previous heights. Royal Unibrew delivered its second-highest free cash flow in 2024 despite elevated capital expenditures. Free cash flow is expected to continue growing, and levered free cash flow margins should improve once capital expenditures normalize. Shifting consumer preferences present a risk for Royal Unibrew, as traditional beer consumption continues to decline across Europe, while growing demand for healthier, low- or no-alcohol beverages challenges some of the company’s core categories. Macroeconomic factors are also a risk, with higher interest rates, rising living costs, and cautious consumer spending putting pressure on volumes and margins in both on-trade and off-trade channels. Prolonged economic weakness could further reduce demand for discretionary beverages. Commodity prices present another risk for Royal Unibrew, as rising costs for key inputs like barley, sugar, aluminum, and energy could squeeze margins if the company is unable to fully pass these increases on to consumers. This risk could intensify over time due to climate-related disruptions and competitive pressures in retail markets. Despite these risks, Royal Unibrew’s strong and adaptable portfolio - built on leading local brands, international partnerships, and a focus on fast-growing beverage categories - positions the company well to capture shifting consumer trends and drive long-term growth. Its ability to flex between premium and mainstream offerings across different channels adds further resilience to its business model. Acquisitions are another key reason to invest in Royal Unibrew, as they have consistently driven growth, expanded the company’s geographic footprint, and strengthened its brand portfolio across new and fast-growing beverage categories. Additionally, Royal Unibrew’s strategic focus on no/low sugar soft drinks, ready-to-drink alcoholic beverages, enhanced drinks, and premium brands positions the company to capture long-term profitable growth in structurally expanding, higher-margin categories. By aligning its strategy with evolving consumer preferences and actively investing in these areas, Royal Unibrew is strengthening its future growth potential. I believe that Royal Unibrew is a great company, and buying shares at the Ten Cap price of DKK 410 could be a good long-term investment.

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