Coca-Cola Icecek: Might be a little flat this year (downgraded to HOLD)

In this report, we downgrade Coca-Cola Içecek (CCI) from Buy to HOLD, with a new 12M price target (PT) of TRY 40.0/share (from TRY 44.2), implying 11% upside potential. On the one hand, we see Central Asia and Middle East as growth leaders, with respective volume CAGRs of 5.5% and 5.2% for 2016-20E, mainly on the back of the favourable macro environment, supported by oil prices, with geopolitical noise becoming quieter. On the other, the broadening scope of the special consumption tax (SCT) in Turkey could slow volume growth by c.3ppts in FY18E, while we believe that the 3.7% volume shrinkage in Pakistan in 4Q17 was not one-off in nature and could signal a volume growth slowdown into FY18E, in our view. Overall, we expect CCI to post revenue/EBIT CAGRs of 13% and 17%, respectively, over 2016-20E. CCI is trading at 9% and 12% discounts vs. its bottling peers, and at a seven-year low on 1YF EV/EBITDA, which we see as justified: i) in our worst-case scenario (20% PKR devaluation and a c.3% volume drop due to the SCT in 2018E in Turkey), our 2018/19E EBITDA estimates would be 9/11% lower than the Bloomberg consensus (which are at 4/8% discounts currently); ii) there is generally poor earnings momentum and the potential for analyst downgrades, given that the Bloomberg consensus rating is a Buy; and iii) there is a lack of near-term catalysts, even if the worst case does not materialise.