Coca Cola HBC AG (LON: CCH)  

Coca Cola HBC AG (LON: CCH) is an FTSE 100 index listed beverage Company, which owns, operates, and control a network of independent bottling plants, warehousing, and distribution systems. The Company has a diverse and flexible portfolio of consumer-focused brands in ready-to-drink tea, coffee, snacks, water, juice, energy, and premium spirits categories. Moreover, CCH serves around 600 million customers across 28 countries in three continents.

On 17 February 2022, the Company will release full-year FY21 results.

Recent trend of dividend payments

The Company had shown a marginal growth of around 3% in the final dividend attributable for FY20 when compared with the prior-year levels. Moreover, the Company had paid a final dividend of 64 Eurocents per share on 03 August 2021, with an ex-dividend date of 08 July 2021.

Growth Prospects

• New Opportunities: The Company had accelerated the progress of sustainable strategy by demonstrating strong growth in its low-and no-sugar variants. Furthermore, the beverages industry would provide numerous growth opportunities in the Company’s diverse portfolio and existing geographic markets.
• Increased Footprints in Italy: CCH had recently acquired a 30% equity shareholding in Casa del Caffè Vergnano, which remained one of the oldest coffee roasters in Italy, offering a truly premium, high-quality coffee. Moreover, the Company remained on track to complete the acquisition of Coca-Cola Bottling Company of Egypt by Q1 2022
• Net Zero Emissions: The Company aimed to invest €250 million in emissions reduction initiatives by 2025. Moreover, CCH remained committed to achieve net-zero emissions across the entire value chain by 2040.

Key Risks

• Covid-19 Pandemic: The new variant of the Covid-19 pandemic, Omicron, had caused a significant decline in the UK Equities.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Surge in UK Inflation: The UK inflation reached a 10-years high as it surged by around 4.2% for the 12 months ended October 2021. It may cause a sooner-than-expected interest hike.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.
  

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Coca Cola HBC AG.

Kar-Tess Holding SA is the most significant shareholder as it holds nearly 85.05 million shares as of 30 September 2021. 

Q3 FY21 Trading Update (as of 19 October 2021)

  (Source: Company result)

• Decent Increase in Revenue: Driven by solid momentum in Nigeria and Russia, CCH’s net sales revenue rose by around 16.1% during Q3 FY21, while it had increased by approximately 15.3% for the nine months period of FY21.
• Higher Volumes: Volumes grew by around 13.1%, benefited by strategic focus areas, with Adult sparkling brands up 27.5% and low/no sugar variants up 54.6%.
• Emerging Markets: The revenue in the Emerging Markets grew by around 26.1%, and volumes witnessed an increase of 21.3%. Thus, it remained the best performing geographic segment during Q3 FY21.

H1 FY21 Financial Highlights (for the six months ended 02 July 2021, as of 12 August 2021)

(Source: Company result)

• Decent Trading Performance: CCH had shown around 13.8% improvement in the total volume during H1 FY21. Moreover, the net sales revenue grew by around 14.7% during the period.
• Robust Emerging Markets: The FX neutral revenue witnessed a jump of around 30.3% in the Emerging markets during H1 FY21, with a strong performance from Russia and Nigeria.
• Strong Profitability: The net profit witnessed a solid growth of around 88% during H1 FY21.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Data Source: Refinitiv, Analysis by Kalkine Group)

On 06 December 2021, at 08:16 AM GMT, CCH’s shares were trading at GBX 2,389.00, up by around 1.23% from the previous day closing price. Stock 52-week High and Low were GBX 2,809.59 and GBX 2,125.00, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an oversold scenario. Moreover, the 14-days RSI stood at ~42.17. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

CCH had achieved robust profitability during H1 FY21 and recorded impressive top-line revenue for the first nine months of FY21. The Company had made an accelerated progress on the Coffee strategy with Caffè Vergnano, as it would enhance premium offerings alongside the broad appeal of Costa Coffee. However, the Company believed the adverse impact of foreign currency on EBIT would be greater in 2021 when compared with 2020. Meanwhile, CCH had expected EBIT margin expansion ranging from 20 basis points to 30 basis points during FY21. The stock price may undergo sizeable corrections amid sluggish macro-economic indicators such as lower-than-expected UK GDP growth during Q3 FY21 and adverse impact of Omicron variant of coronavirus. Overall, CCH remained confident of achieving FX-neutral annual revenue growth ranging from 5% to 6% over the medium term.

Considering the decent revenue growth during 9M FY21, solid growth in profitability during H1 FY21, regular dividend payments, strong operational progress, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Coca Cola HBC AG at the current market price of GBX 2,389.00 (as on 06 December 2021 at 08:16 AM GMT), with lower-double digit upside potential based on 19.50x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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