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Carlsberg (CARLB; Baa1, BBB+; S) Rating risk - price to BBB ratings

CONSUMER STAPLES

Based on above numbers, CARLB will cross Moody's downgrade threshold of gross 3x (we see >3.4x net/gross). Moody's upgraded it to Baa1 in March this year, it's gross leverage measure was circa 2.3x (we had 2.6x) then.

  • CARLB could commit to deleveraging post transaction & highlight any synergies to put-off downgrades. This transaction does move it above its own target of net<2x.
  • It's history of keeping leverage in a gross 2-3x range for many years alongside strong FCF generation (standalone c£700m & BTIC's £130m) could help make it's case for any pro-forma targets.
  • The other side of that coin is it has sizeable buybacks (DKK 4b/£450m) at current run rate & dividend payout at last years levels (DKK ~3.5b/£400m) would take out most of this years consensus FCF. It'll need to curtail that if it wants to delver; share px moves this morning (-9%) indicate that may not be well received.

Cash lines are +3-5bps, 5Y Main CDS +4 at +35, basis -30bps, has traded as wide as -50/not cheap on recent ranges.
CARLB has always traded at wide end of brewers (ex. Asahi) and has been favoured by us historically. No firm view on it being cheap or rich here, those on side-lines should wait out this out.
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