Royal Unibrew A/S : Return to growth

Since there are quite a few earnings reports from the big beverage groups, let's see our comments on the earnings reports of AB InBev and Monster published in the last few days.

The merits of the group are well known: good diversification of the catalog between alcoholic and non-alcoholic beverages; on beer, marked "premiumization" of the catalog, hence the above-average margins and the good resistance to the Geographically, the group has a superb territorial network in the Baltic States, as well as a good presence in Scandinavia and Western Europe.

The company's operating and financial track record is excellent, reflecting the careful blend of prudence and aggressiveness typical of all good business management. This is reflected in the ten-year trajectory, between 2012 and 2022, with revenues and annual profit both increasing threefold over the period.

In activities with structurally limited organic growth, the €800 million - or 6 billion Danish kroner - invested in acquisitions have therefore been invested wisely, i.e. for ROI of between 12% and 15%.

This growth strategy has not prevented three quarters of the profits made from being redistributed to shareholders via dividends and share buybacks. The corollary is a significant increase in debt, now equivalent to 2.5 times the operating profit before depreciation (EBITDA).

No worries here, however: the business remains stable, hyper-defensive, and protected by substantial competitive advantages, primarily the "network effect" via control of distribution channels, which protects existing locations - but also limits the prospects for organic growth.

The market, in any case, welcomes the return of growth - nearly 50% since the pre-pandemic period - since the share has rebounded from the lows where it languished since the beginning of the war in Ukraine.

The only real setback, linked to this very situation, is the sharp decline in operating margins, due to generalized inflation. If this dynamic were to be normalized, i.e. if Royal Unibrew were able to return to its historical margin profile, annual profitability could reach €300 million within two or three years.

This napkin calculation should be seen in the context of an enterprise value of €4.2 billion.