Coca-Cola HBC: Entering choppy waters (downgraded to SELL)

In this report, we have downgraded Coca-Cola HBC (CCHBC) to SELL, from Hold, with a new price target (PT) of GBp 2,205/share (from GBp 2,682/share), implying 11% downside potential. Even though the company’s share price has faced a c.8% sell-off since early-April, we believe a further correction could be expected in the near term on the back of: i) short-term headwinds expected in Russia and Nigeria; ii) an unlikely further consensus rerating, with the 2020E EBIT guidance of 11% priced in already by the market; and finally; iii) its demanding valuation, lacking superiority in fundamental growth. On our 2018E EV/EBITDA multiple of 11.5x, the company is the most expensive bottler in the world, commanding a 53% premium vs. its peers. We see its current valuation as excessive as, on a FX-neutral basis, Coca-Cola HBC’s EBIT and net profit 2018/20E CAGRs are broadly in line with its peers’ averages (EBIT/net 12.1% / 12.5% vs. its peers’ 8.5% / 12.4%). In other words, we would have to see the 2018E EBITDA increase by c.50% to bring the multiple in line with long-term premium (+1%) the company has been trading at historically vs. its peers.