Photographer: Andrey Rudakov/Bloomberg

Carlsberg Cold War Analyst Says New Russia Status a Game Changer

The analyst who’s followed Carlsberg A/S longer than anyone else says Russia’s political and economic ascent points to a much brighter future for the brewer in its biggest market, in a development that promises to end seven years of headaches there.

“There are a number of signs that things are improving for Russia and that is good news for Carlsberg,” Frans Hoyer, who’s tracked the brewer for four decades, including during the Cold War, said in an interview. Not only is the Russian ruble doing better, in part thanks to higher oil prices, “but it may also be fair to speculate that the international sanctions on Russia are moving closer to an end,” he said.

Carlsberg’s Russian business represents the biggest acquisition in the Danish brewer’s history and was once its brightest star, generating almost half of operating profits in 2009. But after a series of shocks struck the Russian market -- including plunging oil prices, Western sanctions, recession and higher beer taxes -- Carlsberg now only gets about a fifth of its operating profit from there.

Trump Sanctions?

The new political landscape is changing all that, especially since Donald Trump -- a card-carrying fan of President Vladimir Putin -- won the U.S. election.

“There are some expectations that Trump will be able to help Russia get rid of the sanctions, and that would of course benefit Carlsberg,” said Hoyer, who’s now vice president of equity research at Jyske Bank. “Trump is saying a lot of things and it’s difficult to know what will actually happen, but it’s not completely implausible that we will see the West adopting a more pragmatic approach to Russia, which would benefit Carlsberg.”

Hoyer, a 60-year-old Dane who has covered Carlsberg since 1985 (the year Mikhail Gorbachev became general secretary of the Soviet communist party) is the most senior ranking of 38 analysts listed on Carlsberg’s investor relations website. Andrew Holland at Societe Generale has tracked the brewer since 1996, the second-longest coverage period, according to the website.

“For seven years, the overshadowing theme for Carlsberg has been the negative news out of Russia, and it has weighed on the company,” Hoyer said. “For Carlsberg, Russia is under way in shifting from a negative to a neutral, or possibly even a positive.”

Read more: Trump says sanctions on Russia to stay at first

Before Russia, Carlsberg analysts focused on the company’s lack of acquisitions, price pressure from stronger retailers and factory closures, Hoyer recalls. “Carlsberg, like many other companies, has often been plagued by specific themes,” said the analyst, who has covered the company out of three different countries for six different firms, including Chevreaux and UBS.

Election Upgrade

There are already signs that the worst is over in Russia. Right after the U.S. election in November, Carlsberg raised its 2016 profit forecast, thanks to better sales in its eastern Europe unit. Back then, Chief Executive Officer Cees ’t Hart said that corner of the business “seems to be bottoming out,” after several quarters of decline, “but Russia is still Russia, so we’ll have to see.” He also declined to comment on Trump’s election victory.

A better Russian market wouldn’t just boost sales there. It would also free up resources at Carlsberg to help it do better in other regions, Hoyer said.

“If Russia stabilizes, it will mean Carlsberg can focus elsewhere and unlock more of the value there is in its strong brands and convert that into earnings,” he said. “It would be a better utilization of Carlsberg’s management if they can focus on something else than constantly putting out fires in Russia.”

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