Global Beverages_ Global soft drinks bottling_ The next beverage battleground, d_g Royal Unibrew to EW

Summary of Key Points from the Research Report on Global Beverages Industry Overview - The report focuses on the global soft drinks bottling industry, particularly the competitive dynamics between major players such as PepsiCo (PEP) and Coca-Cola (KO) in Europe and Asia [1][20]. Core Insights 1. Bottling Network Consolidation: PEP is evolving its bottling strategy to consolidate its fragmented network into fewer multi-market 'anchor' bottlers, similar to KO's model. This shift is expected to drive further consolidation in the industry [2][30]. 2. Carlsberg's Position: Carlsberg's acquisition of Britvic positions it as PEP's largest European bottler, with expectations of further consolidation benefiting Carlsberg and Coca-Cola Europacific Partners (CCEP) [2][3]. 3. Royal Unibrew's Challenges: Royal Unibrew is seen as structurally disadvantaged in the evolving competitive landscape, leading to a downgrade in its rating to Equal Weight (EW) [9][77]. 4. Market Share Dynamics: PEP has gained market share in Denmark and Finland at the expense of KO, with PEP's share in Denmark increasing from 6.6% in 2015 to 19.6% in 2023, while KO's share declined from 47.4% to 33.8% [47][48]. 5. Potential Volume Increases for CCEP: If Carlsberg loses its KO contracts in Denmark and Finland, CCEP could see a volume increase of approximately 3% in Europe [3][52]. Financial Metrics and Forecasts 1. Royal Unibrew's Financial Outlook: The consensus forecast for Royal Unibrew's operating profit growth (OPG) is +9.5% for FY25, but this is viewed as optimistic given the competitive landscape [9][83]. 2. Debt Levels: Following the Britvic deal, Carlsberg's debt levels are expected to be higher than its peers, raising concerns about financial stability, especially with significant cash flow reliance on China [8][9]. 3. Valuation Adjustments: The report adjusts Royal Unibrew's target growth rate (TGR) from 1.5% to 1.0%, resulting in a price target reduction of approximately 6% to DKK 653 [9][86]. Strategic Considerations 1. Future Bottling Contracts: The report suggests that future PEP contracts may be harder for Royal Unibrew to secure due to its weaker positioning compared to Carlsberg [77][82]. 2. Geographic Expansion Opportunities: Carlsberg is expanding its relationship with PEP into Asia, including new bottling licenses in Kazakhstan and Kyrgyzstan, indicating growth potential beyond Europe [72][73]. 3. Competitive Landscape: The changing dynamics favor Carlsberg over Royal Unibrew, as Carlsberg has a stronger presence in key beer markets and better distribution capabilities [7][61]. Risks and Challenges 1. Market Volatility: The report highlights risks associated with a potential consumer slowdown, which could impact demand and pricing power across markets [95][144]. 2. M&A Opportunities: Royal Unibrew's ability to pursue accretive M&A is crucial for its growth, and any failure to do so could limit its competitive edge [89][144]. Conclusion - The report indicates a significant shift in the soft drinks bottling landscape, with Carlsberg positioned to benefit from PEP's consolidation strategy while Royal Unibrew faces increasing challenges. The financial outlook for both companies is closely tied to their ability to navigate these competitive dynamics and secure future contracts.