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Coca-Cola Hellenic | Underpinned in a precarious backdrop

Covid-19 induced deleveraging… – In the aftermath of the pandemic, CCH suffered a 9% volume decline in H1’20 on a 6% price/mix erosion, driving a c16% drop in reported sales. With April being the trough from an operating perspective and current trading pointing to improving trends, we believe it is reasonable to expect sequential improvement in H2 (we model revenues -4%). Overall, we expect FY20 sales to shape c-10% lower yoy, on a 3% decline in price/mix mainly driven by adverse pack and channel mix across most of CCH’s territories.

… mitigated by lower input costs and cost curtailment – As the pandemic hit consumption and normal everyday activities, commodity costs and most expenses relating to transport and social life were quashed. In CCH’s case, this translated into a c8% decline in FX-neutral input costs/case. Besides input costs, CCH has managed to mitigate the volume deleveraging through tight cost monitoring, delivering a c8%% drop in comparable opex in H1. As a result, it contained the EBIT drop to c36% in H1 (margin -230bps), a respectable performance against the background of COVID-induced restrictions (and c9% above consensus).

2020 estimates look underpinned but limited visibility on 2021 – With consensus estimates factoring in a c17% drop in H2 EBIT (from -36% in H1), we believe 2020 estimates are well underpinned at the current juncture and thus see limited risk to consensus for this year. That being said, looking ahead to 2021, although the macro prospects across CCHBC’s territories are projected to bounce back, growth may be dented by a potential 2nd wave of infections and, along with it, some form of restrictive measures, especially in the ‘out-of-home’ channel. As such, with consensus already incorporating substantial growth in 2021e (revenues +7%, EBIT +23%) with 2021 adj. EBIT forecast to shape just 8% below 2019 levels, we feel risk lies on the downside for next year.

Long-term case remains intact – In spite of potential sustained structural changes in consumption habits in the post-covid era (e.g. at-home indulgence), CCH is well-placed to benefit from the return to growth of the NARTD market, recovery of CSD consumption per capita vs. peak levels, market share gains, and product innovation. In that regard, the long-term story remains intact.

Valuation – We recalibrate our valuation making limited changes to our numbers at this stage. Our PT (DCF-based) is edged up to €23.9, effectively valuing CCH at c20x 12m Fwd PE, c15% discount to the brand owner TCCC. With the current share price discounting EBIT CAGR of c7% in the medium-term (after the covid impact recedes), we believe the valuation is fair.