Coca Cola HBC AG

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.

The Company will release full-year 2020 results on 11 February 2021.

Investment Highlights – Coca Cola HBC AG – Buy at GBX 2,406.00

• CCH is identified as amongst the leading bottlers globally and has a strong foundation for growth in the long-term period.
• The Company has a strong balance sheet with adequate liquidity, which will help them to quickly adapt as per customer demand.
• In the last three months, the Company delivered a decent return of ~ 23.79% and delivered higher returns compared to the benchmark Index (FTSE-100 Index).
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (GBX 2,364.70), which reflects an uptrend in the stock and can move up further.

Key Risks

• Due to Covid-19 situation, the consumer environment is weak, and it may impact the profitability in FY2020.
• Furthermore, volatility in foreign exchange rates amid recessionary economic condition can increase the cost base.

Trading Update Q3 FY2020 (released on 11 November 2020)

• In the third quarter of FY2020, the Company witnessed growth in the at-home channel and strong recovery in out-of-home channel, with monthly sequential improvement in FX-neutral revenue.
• The Company’s revenue is benefited by strong performance in Poland, Russia and Nigeria.
• The Company reported positive volumes in August and September, with 1% growth on like-for-like basis.
• The Company has a strong balance sheet and adequate cash balance to meet financial commitments.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown an improvement in performance, along with value share gain, after the easing in lockdown restrictions. The Company witnessed improvement in developing and emerging markets. CCH made strong progress towards its cost savings target of €100 million. Moreover, current trading continues to confirm sequential improvement. Overall, the Company has a resilient business model, and it is well-positioned to adapt as markets reopen and shall emerge even stronger. The stock made a 52-week low and high of GBX 1,393.10 and GBX 2,933.00, respectively.

Based on the decent growth prospects, 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 price of GBX 2,406.00 (as on 7 January 2021, before the market close at 8:15 AM GMT),with lower double-digit upside potential based on 26.75x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

C&C Group Plc

C&C Group Plc (LON: CCR) is an FTSE 250 listed Company, which is engaged in the manufacturing and distribution of branded beer cider, wine, spirits and soft drinks across the United Kingdom (UK) and Ireland.

Investment Highlights - C&C Group Plc – Hold at GBX 227.00

• The Company has strong liquidity to fund the business in covid-19 crisis and has taken measures to reduce cost base permanently.
• In the last three months, the Company delivered a decent return of ~ 18.79% and delivered higher returns compared to the benchmark Index (FTSE-250 Index).
• As per valuation metrics, EV/EBITDA and Price/Cash Flow multiples of the C&C Group Plc are currently lower as compared to the corresponding multiples of the Beverages industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading well above the support level of 200-day simple moving average prices (GBX 207.30), which reflects an uptrend in the stock and can move up further.

Key Risks

• The Company’s business may be adversely affected by changes in government regulations impacting alcohol pricing, sponsorship or advertising.
• Also, the inability to adopt the changing consumer health trends and health policies can lead to a loss of consumer base.

Financial & Operational Highlights – H1 FY2021 (31 August 2020) (released on 21 October 2020)

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2020, due to the impact of the covid-19 pandemic, the net revenue declined by 55.4%, while the revenue from off-trade surged by 15.6%.
• The Company reported negative free cash flow for the period and has taken multiple measures to control cost.
• During the pandemic production facilities and supply chain were operational, and the Company gain market share in the off-trade business.

One Year Share Price Chart

ss(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

The Company has shown a significant decline in financial performance in the first half of the financial year 2021. Both the top-line and the bottom-line performance declined, while profitability remained in the negative zone. Despite the lower financial performance, the Company maintained a strong liquidity position to fund operations and has managed to increase market share in the off-trade business to offset the impact of on-trade business. C&C Group has generated profit from July to September, while in October the Company faced challenges, due to on-trade restrictions in the UK and Ireland. The stock made a 52-week low and high of GBX 139.60 and GBX 416.50, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” recommendation for C&C Group Plc at the current price of GBX 227.00 (as on 7 January 2021, before the market close at 8:45 AM GMT) and will recommend fresh buying at the right time.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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