EUR 300.00 For Business Accounts Only

Coca-Cola Hellenic | All-weather and priced for it

Resilient operational execution in FY20 – CCH had a strong finish in 2020, managing to contain the adj. EBIT decline to -11% yoy (beating consensus by some 9%) in a year that saw organic volumes fall c5% and reported revenues drop by c13% (-8.5% LFL FX-neutral). The beat was underpinned by significant cost control (€120m savings initiatives), on top of a favorable input cost environment (FX neutral input cost per case -6% yoy). As such, FY20 adj. EBIT settled at €672m (vs expectations for some €617m).

Set for a strong rebound in a bifurcated 2021; raising 2021 EBIT c5% – Despite limited visibility on the timing of economies’ reopening, the 2021 outlook for CCH looks promising, underpinned by the macro recovery, pent-up demand and increased consumer saving rates. Against this background, we see a strong rebound in H2’21, following a softer underlying H1’21 (albeit facing easy comps). Overall, we incorporate 5.6% volume growth in 2021e (a bit below 2019 levels) and a c8% increase in organic price/mix driven by category/pack mix and pricing in Poland. The above coalesce into a 10% growth in revenues, which, however will still be c4% lower than 2019 levels. We expect the pendulum of operating leverage to turn positive, thereby leading to adj. EBIT of €750m, +11.5% yoy on a slightly higher margin (+0.1pp yoy).

Current forecasts already incorporate a significant bounce back – Following the strong finish to the year, we have also raised our 2022 adj. EBIT by c4%, anticipating another year with double-digit growth. Although the growth algorithm targeted by mgt post COVID-19 is quite compelling (namely 5-6% FX-neutral revenue growth, 20-40 bps annual EBIT margin expansion), we reckon that the bar set by the market is already quite high. Indicatively, consensus estimates factor in 6.7% revenue CAGR throughout 2024e and adj. EBIT growth of 8.7% in the same period. In our view, there is limited upside risk to this forecast unless the macro/FX backdrop proves far more benign.

Long term case intact – In the long-run CCH is well placed to benefit from the rebound in the NARTD market, rising consumption per capita in less developed markets, share gains and premiumization opportunities. The long-term case thus remains intact, with the robust balance sheet and solid FCF generating capacity of the business offering further optionality for value-accretive M&A or scope for a special dividend, given that CCH is at the low end of mgt’s target gearing range.

Valuation – Following the change to our estimates, we have lifted our PT to €29.50. The latter remains based on a DCF (at 7.9% WACC) and effectively values CCH at c21x 12m forward PE, c10-11% discount to the brand owner TCCC. Taking into account the medium-term prospects and current valuation levels, we find the risk-reward profile balanced, as on our estimates the current price level incorporates c6.5% EBIT CAGR over the next 8 years, which looks fair taking into account the FX/input cost risks.