European Beverages
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DJ Stoxx Food & Beverage DJ Stoxx TMI (Rebased)
Source: Factset
Sector coordinator(s)
Richard Withagen
SNS Securities Netherlands
Sector team
Claudio Giacomiello, CFA
Banca Akros Italy
Francis Prêtre
CM - CIC Securities France
François-Xavier Archambault
CM - CIC Securities France
Marc Leemans, CFA
Bank Degroof Belgium
Michael McMahon
NCB Stockbrokers Ireland
Natalia Svyrou-Svyriadi
Marfin Analysis Greece
Sergio Ruiz Martin
Caja Madrid Bolsa Spain
Søren Samsøe
Danske Markets Equities Denmark
European beer and champagne companies have increasingly felt the impact
of the economic slowdown in the course of 2008, especially through
deteriorating volume trends. The spirit sector has held up relatively well, but
shows signs of slowing down recently. From a volume perspective, we
expect that 2009 will be a challenging year for the European beverages
industry, while prospects for volume growth in 2010 are better.
Falling commodity prices should give the industry some relief from a margin
perspective, but it is questionable whether this will impact the industry
positively in 2009. Most companies have hedged their raw material needs
and these hedges will expire in the course of this year. The gross margin
benefits will mostly accrue in 2010 in our view.
Financially sound
Several multi-billion euro acquisitions in 2008 have substantially increased
debt levels in the industry. For the companies concerned, deleverage will be
the name of the game in the next few years, especially as pressure from
higher interest rates has increased as well. Still, beverages companies on
average enjoy pretty stable cash flows and despite some pressure on these
cash flows in the near term, we expect the industry to be capable of serving
its debt obligations relatively easy.
Valuation
Spirits have shown a better stock market performance than the beer and
champagne companies, due to limited signs of a volume slowdown and
good earnings prospects for 2009. We expect brewers to post a better stock
market performance than the spirit companies going forward, especially as
a result of better earnings prospects for 2010. Champagne producers also
are clearly more attractive from a valuation perspective, although we believe
their earnings prospects appear riskier than those of the brewers.
Top Picks
On an individual basis, we favour Carlsberg among the large brewing
groups given the stock markets exaggeration related to its exposure in
Russia and its debt profile. This has resulted in Carlsberg trading at very
attractive valuation multiples. Among the smaller brewers, we have a Buy
rating on Harboe.
In spirits, we are most positive on Pernod-Ricard, which recently gave a
reassuring trading update and will benefit from the integration of the Absolut
vodka brand.
Among the champagne producers, we advice buying Boizel Chanoine
Champagne. BCC will continue to benefit from the 2006 acquisition of the
Lanson brand and enjoy strong cash flows due to limited capital expenditure
needs.

Contents
Beverages intro......................................................................................... 3
Beer: a transitory year in 2009................................................................ 5
Spirits: Premiumisation vs market slowdown.................................... 25
Champagne: The big 2008 crisis.......................................................... 33
Secure cash flows to serve increased debt levels............................. 47
Valuation .................................................................................................. 64
Company profiles ................................................................................... 72
All prices as of 9 February 2009