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Coca-Cola Hellenic | Dynamic start lifts outlook

Very strong Q1’23 top line momentum instilling confidence on positive 2023e profit growth… – CCH recorded a strong Q1’23 top line performance delivering +16% organic sales growth, thanks to +21pps organic price mix only partly offset by a -4pps organic drop in volumes, as CCH was cycling tough comps in emerging (due to the downsizing of Russian operations) and developing markets. At the same time CCH had to contend with a tough economic landscape in Nigeria (cash crisis) and affordability pressures in various markets. The very strong price/mix (>4pps above consensus forecasts) and the lower than anticipated drop in organic volumes (consensus -8% yoy) are indicative of solid execution, with CCH gaining market share while growing strongly higher-margin segments (coffee, energy). In the light of the firm Q1, CCH mgt echoed confidence in achieving positive comparable EBIT growth in 2023, at the high end of the guided range (±3% yoy, c€900-960m), thus indicating potential for adj. EBIT >€950m.

Lifting EBIT c2-3%, landing at the top of the guided range – Though the macro-outlook remains challenging across several of CCH’s territories, we have raised our 2023-25e forecasts c2-3%, allowing for the higher top line to filter to profitability offsetting cost inflation and more adverse FX. For 2023, we now pencil in almost flat volumes and a c12pps price/mix, looking for c9% organic sales growth (ahead of CCH’s medium-term growth target of 5-6%). We maintain our low teens input costs/case assumption and raise the adverse FX impact in sync with mgt indications for c-5-6%. The above result to a 2023e adj. EBIT of €959m (+3.2% yoy), at the top end of mgt’s guidance. We expect consensus to move towards our number (from c€940m pre-results release).

Operating leverage more pronounced in 2024e, with c10% EBIT growth – We model a further c5% growth in price/mix in 2024 on top of volume recovery, thus eyeing a c8% organic sales growth, while looking for a low-to-mid single digit increase in input costs/case. This translates to a FY’24 comp. EBIT forecast >€1bn, +10% yoy. Looking ahead, we input a medium-term EBIT CAGR of c8%, with the respective margin surpassing the 11% target post 2027.

Valuation: enhanced short-term outlook priced in – The enhanced short-term outlook and earnings upgrades feed into a higher PT of €28.5/share (from €25.4 previously), predicated on a DCF using a 9.7% WACC to reflect emerging market risk. Valuation-wise the stock remains below its long-term average valuation of c9x EV/EBITDA, effectively still incorporating an elevated risk premium given geopolitical uncertainty around Russia/Ukraine. Given the near-term uncertainty over the consumer environment and the sustained cost pressures we stick to our Hold rating, noting that we expect the stock to continue moving in sync with fundamentals. In other words, we expect the stock to move higher in the valuation spectrum as the consumption environment improves. The next catalyst is the investor day on 25th May.