Europe Preview: A Pint? Or a Half?
In the beer industry, size is very important. The market leaders globally are Inbev, SABMiller and Anheuser Busch, and they all benefit from scale in areas such as marketing and distribution. Behind those giants comes the likes of Heineken and Carlsberg, and both are desperate to keep up with the big three.
Earlier this year Carlsberg pulled off something of a coup by teaming up with Heineken to takeover Scottish & Newcastle of the UK. The S&N management team was very unhappy with Carlsberg, given they had until then been partners in a highly successful joint venture called BBH in Russia, but the Danes had no choice—they had to get bigger.
On Wednesday, BBH is expected to post growth of more than 10 percent, with Western European sales growth forecast to be far weaker. A rights issue to pay for the deal hangs over the stock, but a number of analysts are upping their price targets. Analysts at Morgan Stanley say that higher commodity prices are now priced into the shares and think the current valuation of DKK 656 is compelling. A price target of DKK 700 is though far less bullish than UBS and JPMorgan, who rate the stock at DKK 780 and DKK 830 respectively.
In a free market, these shares could be worth even more but in the real world, a complicated ownership structure makes a takeover of Carlsberg by one of the Big Three nearly impossible. If you are a small shareholder in Carlsberg, that could well mean your holding will continue to trade at a discount to the rest of the sector.
The CEO will join "Power lunch Europe" at 12:05 CET to discuss the numbers tomorrow
The Luck of the Irish
Brian Cowen takes over as the Irish Prime minister on Wednesday, and he could be forgiven for secretly wishing Bertie Ahern had fallen on his sword a little earlier. If Cowen had got the job a couple of years ago, he would have been able to preside over an economy with +5 percent growth and a booming housing market.
Instead, growth is forecast to fall sharply this year and the housing market is finally beginning to show signs of stress. How bad things get may take time to become apparent, but for the country's banks a lot of bad news is priced into the shares.
When the wholesale markets collapsed earlier this year, many speculated that the Irish banks could be in trouble. Access to the ECB, liquidity window probably helped the country avoid its own Northern Rock but difficult times lie ahead.
Anglo-Irish Bank reports tomorrow morning, and shares are some 46 percent lower than they where this time last year. Profits are expected to be 16 percent higher but the market is very worried about where we go from here. When CEO David Drumm goes in front of the "Squawk Box" team tomorrow at 8:05 CET, he will have to answer some tough questions.
Investors are concerned that lending growth will slow sharply, and while the bank remains well funded, the big concern is that its loan book could hide some nasty surprises if the housing market continues to fall. Drumm believes the Irish know they have to try and live within their means but as he tells Cowen to reform the economy he could be doing his shareholders a disservice, in the short term at least.