Coca Cola HBC AG – Operating with Robust Balance Sheet and Sufficient Liquidity

Coca Cola HBC AG (LON: CCH) is a FTSE 100 listed Beverage Company, which owns, operates, and control a network of independent bottling plants, warehousing, and distribution systems.

On 5 August 2020, the Company will announce the half-year results for 2020.

Recent News
On 18 June 2020, the Group said Michalis Imellos would step down as Chief Financial Officer (CFO) at the end of the first quarter of 2020. Immellos will continue in his role until his successor has been hired and then stay with the Company during a transition period.

On 12 June 2020, the Company admitted 321,527 ordinary shares under the stock option plan, which will commence trading on the Athens Exchange on 16 June 2020.

Q1 Trading Update (for the three months period ended 27 March 2020)
As per the update on 7 May 2020, the trading in the months of January and February remained strong, while in March due to imposed lockdown, the performance declined as it impacted the out-of-home channel. The Group’s FX-neutral revenue in the first quarter of the financial year 2020 declined by 1.2%, while the volumes surged by 3.1% for the period.

In established markets, the FX-neutral revenue declined by 7.2%, and the volume declined by 5.5%. In developing markets, the FX-neutral revenue declined by 2.9%, and volume increased by 1.8%. In the emerging markets, the FX-neutral revenue increased by 4.8% and volume increased by 8.1% with double-digit volume growth in Nigeria.

In the month of April 2020, the FX-neutral revenue declined by 37.2%, and volumes fell by 27.3%, as due to the lockdown scenario. CCH has taken measures to re-prioritise investments and reduce costs. The balance sheet remained strong, with adequate liquidity to meet financial commitments.

Share Price Performance

 1-Year Chart as at July-02-2020, after the market close (Source: Refinitiv, Thomson Reuters)

Coca Cola HBC AG’s shares closed at GBX 1,983.50 on 2 July 2020, which was down by 1.95% against the last day closing price. Stock 52 week High and Low were GBX 2,950.00 and GBX 1,393.10, respectively.

From the technical standpoint, 14-day RSI (Relative Strength Index) is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology

*Peers: Diageo Plc, Pernod Ricard SA, Davide Campari Milano SpA, Britvic Plc, and Carlsberg.

*1EUR =0.901839 GBP.

Key Risks
The growth of the Company is subject to certain risks, such as increasing health awareness, rising regulations, among others. Moreover, the acquisitions to match rapid transformation may increase integration risk and expected synergies may not be achieved.

Conclusion
The Group entered the financial year 2020 with positive momentum and showed decent performance in the month of January and February before the lockdown was imposed. In the first quarter of the financial year 2020, the Group witnessed an increase in FX-neutral revenue and volume from Emerging markets with double-digit volume growth in Nigeria.

Going forward, CCH is expecting to generate decent net sales growth. The Group strategy is based on Occasion, Brand, Package, Price and Channel (OBPPC) and help the customers in choosing the right product, at the right price and in the right pack as per the occasion. Moreover, the Group is identified as amongst the leading bottlers of drinks globally and has a strong foundation for growth in the long-term period.
Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Buy” recommendation at the closing market price of GBX 1,983.50 (as on 2 July 2020) with lower double-digit upside potential based 24.15x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

Britvic Plc – Marked Strong Momentum and Robust First-Half Performance

FTSE 250-listed Britvic Plc (LON: BVIC) is a Hertfordshire, United Kingdom-based soft drinks Group, which has established a robust portfolio of the iconic brands.

Financial Highlights (for the 26 weeks ended 31 March 2020, as on 27 May 2020)

(Source: Presentation, Company Website)

Overall results reflected a good start to the year, with value share gains in Ireland, GB, and Brazil. The reported comparisons to the previous year depict two weeks less trading in 2020 (due to change in monthly reporting).  Despite the current uncertainty, the Group has reported the first half of 2020 revenue at £698.8 million and adjusted EBIT growth of 9.4% to £75.7 million with adjusted EBIT margin increased by 80bps. The revenue growth led by local favourites – MiWadi, Pepsi, Robinsons, Maguary, 7UP and Tango. Adjusted basic earnings per share (EPS) for the current period was 19.0 pence, an increase of 2.7% (at actual exchange rates) on the same period last year. As per the uncertain environment, the Board prudently deferred dividend decision.

Share Price Performance

1-Year Chart as at July-02-2020, after the market close (Source: Refinitiv, Thomson Reuters)

Britvic Plc’s shares closed at GBX 768.00 on 2 July 2020, which was up by 1.92% against the last day closing price. Stock 52 week High and Low were GBX 1,079.00 and GBX 536.00, respectively.

From the technical standpoint, shares were trading well above the short-term support level of 50-day simple moving average prices, which reflects an upward trend in the stock.

Valuation Methodology
 


Key Risks
Regarding the risk, the principal risk revolves around failure to evolve portfolio considering the rising health concerns, inventory shortage due to supply chain disruption presented by COVID-19 chaos and risk associated with climate change.

Conclusion
The Group witnessed strong growth in core Britvic categories of flavoured concentrates and low/no sugar carbonates. The Group has a portfolio of good brands, which would enhance the growth trajectory of the Company, and has the potential to deliver value to the investors. However, it expects conditions will stay challenging, driven by macroeconomic uncertainty and coronavirus outbreak.

Britvic remains resilient in the face of tough external circumstances. The Group has delivered a robust start to the year 2020. The Group has delivered a healthy first half of 2020 performance. The Company has a solid balance sheet and benefitting from the recent re?financing of RCF (Revolving Credit Facilities) to navigate the pandemic. Furthermore, the Company has gained a reputation for being an agile and strong business that consistently creates value for all investors. Britvic is also well placed to respond to the impact of COVID-19 on the consumer.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Buy” recommendation at the closing market price of GBX 768.00 (as on 2 July 2020) with high single-digit upside potential based 20.10x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
* The “Buy” recommendation is valid for the current price as covered in the report as on 3 July 2020.

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