Report
Natalia Svyriadi
EUR 300.00 For Business Accounts Only

Coca-Cola Hellenic | Sweetening outlook; Raise to Buy

Rating: Buy from Hold
Target Price: EUR 30.80 from EUR 28.50

Stellar H1’23 performance… – CCH delivered a strong H1, with organic EBIT +17.7% yoy at €561m, thanks to +18% growth in organic revenues. The company enjoyed stronger than anticipated operating leverage managing to expand adj. EBIT margins by 20bps (to 11.2%) despite the multiple challenges (affordability pressures, Nigeria cash crisis). This came as a result of the significant price/mix growth (+19pps yoy and c2pps above consensus) and CCH’s solid operational execution, with the group gaining market share while continuing to grow higher-margin segments (coffee, energy).

… triggered upgrades in 2023 guidance… – In view of the strong H1, CCH mgt had already revised its FY’23 guidance higher in July, calling for +9-12% organic EBIT growth in 2023, effectively indicating adj. EBIT >€1bn. Guidance was reiterated post H1 results, with key underpinning factors summarized to: 1) upgraded organic top line growth in the low teens (vs high single digits previously) and 2) lowering of 2023e COGS/case inflation expectations to a high single-digit rise (vs low-teens seen before).

… leading us recalibrate our forecasts, landing at the high end of the guided range – We raise our 2023e adj. EBIT 7%, led by a 1% upgrade in our revenues estimate and topped by lower than anticipated costs, despite adverse FX. In specific, we model almost flat organic volume growth and 14.8pps organic price/mix looking for a +15% organic sales rise. Assuming some 3.5pps from scope and a negative c6pps from FX, we end up with €10,179m revenues (+10.7% yoy) in 2023. We also trim our costs/case assumption (to +7-8pps yoy). The aforementioned result to a 2023e adj. EBIT of €1,029m (+10.7% yoy, +12% organic, on flattish margins), at the top end of guidance.

Operating leverage remains more pronounced looking ahead, albeit now cycling a higher base – With CCH having taken noticeable pricing in 2022 and 2023e, we prefer to maintain a relatively conservative stance looking further out. We pencil in 3-4% organic price/mix in 2024-25e, coupled with more balance volume growth and low-to-mid single digit growth in COGS/case. This translates to organic revenue growth of 6% annually and c8% adj. EBIT growth in 2024-25e, with EBIT reaching €1.1bn and €1.2bn respectively. Looking further ahead, we input a 7.2% medium-term EBIT CAGR, with the respective margin near 11% by 2027.

Valuation: raise to Buy; de-rating since 2019 despite EBIT >35% higher than the 2019 mark – The enhanced short-term outlook feed into a higher valuation, with our PT set at €30.8/share (from €28.5). This is predicated on a DCF where we use a lower WACC of 9.2% (reflecting the reduced weight of Russia in profitability). Valuation-wise the stock remains below its long-term average valuation of c9x EV/EBITDA and at >25% discount vs EU beverages, effectively still incorporating an elevated risk premium due to its emerging market exposure. We believe that at the current price CCH is sufficiently de-risked (material de-rating since 2019 despite EBIT set to shape >35% higher than in 2019) as the current price discounts just c4.5% EBIT CAGR over the next 8 years, quite a pessimistic scenario in our view. As such, we raise the stock to a Buy.
Underlying
Coca-Cola HBC AG

Coca-Cola Hellenic Bottling Co. produces, sells and distributes an extensive portfolio of non-alcoholic ready-to-drink beverages. Co.'s business is engaged in producing, selling and distributing non-alcoholic ready-to-drink beverages under bottlers' agreements with The Coca-Cola Company. In some Territories, Co. also produces, sells, distributes and markets its own brands of juice and Water beverages. In addition, Co. bottles and distributes beer in Bulgaria and Former Yugoslav Republic of Macedonia and Co. distributes a selected number of third party premium spirit brands in certain central and eastern European operations.

Provider
Eurobank Equities
Eurobank Equities

Eurobank Equities is a Greek-based firm offering research, sales and trading services to institutional, corporate and private clients. The company is wholly owned by Eurobank, one of the 4 systemic banks in Greece.

Research is the backbone of Eurobank Equities' platform, with a team of 4 professionals committed to generating actionable investment ideas by providing timely research products. We are committed to offering value-added services to clients by filtering market noise and providing insights on the multiple sectors that we cover. Our universe includes 26 - large, medium and small cap - companies whose market capitalization amounts to 80-85% of the total market capitalization of the Athens Stock Exchange. Our research team also maintains the capacity to generate ad-hoc research for micro-cap listed companies.

Our team has consistently gained recognition among institutional investors for its quality research, having ranked No. 1 team in Greece at the Extel Surveys of 2013-2016 and 2018. We have also been named Leading Brokerage Firm in Greece over 2014-2016 and in 2018.

Analysts
Natalia Svyriadi

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