Denmark: Carlsberg bonds worth buying again despite Russia risk - analysts

The bonds of Carlsberg Breweries A/S have now become so cheap they are worth buying again despite a deepening risk the Russian business may be lost, according to analysts at Denmark’s biggest bank, Bloomberg reported on March 18.

Carlsberg, which owns Russia’s largest beer company, will probably avoid a downgrade of its credit rating even in a worst-case scenario where Russia nationalizes local assets, Mads Rosendal, a credit analyst at Danske Bank, said in a note to clients.

The analyst raised his recommendation on the debt to overweight from underweight, saying the Copenhagen-based company’s bonds have widened “significantly” relative to peers.

“While part of this is warranted, we believe the move is overdone,” Rosendal said. The market now sees a 75-95% risk of Moody’s cutting its Baa2 rating on Carlsberg to Baa3, while Danske sees “a probability that is much closer to 0%,” he said.

Moody’s declined to comment on its rating when contacted by Bloomberg News, but said that in addition to lost profits from Russia, spillover effects from high inflation will weigh on earnings over the next six to nine months. Russia and Ukraine contribute roughly 10% of Carlsberg’s operating profit.

“The company’s current credit metrics offer a degree of flexibility to absorb temporary pressures on margins and cash generation, though visibility is very modest,” Paolo Leschiutta, a senior vice president at Moody’s, said.

Carlsberg said last week it’s reviewing a full range of strategic options for its Russian business, which it will carve out to operate as a separate entity. It has also dropped investments in Russia, where it employs about 8,400 people, and will stop producing and selling the flagship Carlsberg brand in the country.

“Asset seizure is a real risk, given the wording from Russian officials,” Danske’s analyst said. Still, “we do not believe that Carlsberg would be first in line, given its commitment to remain open and provide jobs in the region.”

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