Things haven't been all plain sailing for Carlsberg recently, but a re-focus and careful cost savings mean it's still a top pick, according to Bank of America Merrill Lynch (BoAML).
In mid-November, the world's fourth largest brewer reported third quarter results that were dragged down by falling sales in Russia - its largest market, which accounts for 40 per cent of its sales and has seen profit down 25 per cent over the past five years. Regulatory setbacks have seen the company struggle in the region and, because of that, its shifted focus to Asia.
The company has seen fast growth in China, Vietnam and Cambodia, in a market which BoAML says is "under-appreciated". And its restructuring of its western Europe supply chain is showing margin recovery, too.
The bank says its confidence in Carlsberg has bloomed, as it hones back office processes and sees longer-term margin upside from integrating its eastern and western European supply chains. It believes that the beer company's ability to deliver "at least 2.5 percentage points of margin expansion in western Europe for at least the next five years" looks more and more likely.
Carlsberg's western Europe margins are low when compared to its peers. Its 16 eastern European breweries (nine are in Russia) operate almost independently from western Europe, but BoAML stresses that integration shouldn't be too difficult - eastern Europe should be able to interface direct onto western Europe's computer systems, which could mean margin upside in both regions.
It goes on: the brewer's cost savings plans (which are historically very good) have so far only served to offset underlying cost pressures and/or the Russian profit pool slump. But, it says, assuming Russia will stabilise, and western Europe will see moderating input cost inflation, it thinks "future cost saves can drop through to the earnings before interest and tax (EBIT) line."