As a public company Carlsberg is obliged to publish all information that might influence their share price which makes it an ideal candidate for a thorough valuation. And therefore the author would like to dig deeper into the knowledge and theory behind a strategic and financial valuation. 1. 1. Problem formulation Carlsberg? s share price has undergone serious fluctuations in the last 3 years. From peaking in late 2007 at around 621. 559 to dropping to a low of 151 in March 2009 to steadily rise again to 575 in March 20115. 1 2
Euromonitor (2011, p. 12) Euromonitor (2011, p. 11) 3 Annual Report (2009, p. 1) 4 Bloomberg Professional, 2011 5 Bloomberg Professional, 2011 5 Strategic and Financial Valuation of Carlsberg A/S This is a decline of more than 75% followed by an increase of more than 380%. Not only has Carlsberg outdone the OMXC20 index, where it weighs around 7. 58%6 of the total index, but it has also outdone the MSCI index7 by more than 200% since 2009. Analysts strongly disagree as to why Carlsberg has managed to outdo the Indexes so much in the last 5 years.
One can assume that the sharp decline in 2008/9 was mostly caused by the global recession where commodity prices rose heavily and investors were afraid that the debt caused by the acquisition of Scottish & Newcastle and Baltic Beverages Holding would weigh them down. However, as 2009 and 2010 passed commodity prices rose heavily8, which hit Carlsberg on the bottom line, Carlsberg managed to outdo the Indexes to such great extent. 6 7 www. nasdaqomxnordic. com The MSCI World Index is a stock market index of over 6,000 stocks in developed markets. 8 Graph in section 3. . 2. 4 6 Strategic and Financial Valuation of Carlsberg A/S Why is that? This is one of the reasons why the author finds it interesting to do a strategic and financial valuation of the firm. What are the main value drivers that cause the company’s share price to constantly rise? According to Efficient Market Theory9 (EMT) all information is embedded into current prices and changes in prices are random, and will therefore not follow any patterns or trends. If this theory holds then there must be some significant value drivers driving the company? s share price up.
Or could it be that the behavioral economists are right when they argue that markets are not perfectly efficient as EMT suggests? Human errors and inabilities in interpreting market information devalue the EMT as studies have shown that regardless of the available information markets are not completely effective because investors many times do not behave rationally to given information. This tells us that prices fluctuate more due to these human biases than if the market was completely efficient. Given this information, the author wants to do his best in estimating Carlsberg? fair market value by analyzing all major factors that affect the company without any cognitive or any informative bias being included. If my own valuation differs a lot from the market price then some bias has occurred. There will unfortunately always be some subjective assumptions when doing a fundamental analysis so if my own valuation differs a lot from the market price one might question whether the valuation has contributed to a more effective market or has been a victim of the behavioral economics.