Coca Cola HBC AG

Coca Cola HBC AG (LON: CCH) is an FTSE 100 index listed beverage company founded in 1969. It owns, operates and controls a network of independent bottling plants, warehousing and distribution system.

On 22 June 2021, the Company would conduct its annual general meeting.

The next dividend of EURO 0.64 per share would be paid on 3-August-2021(final dividend).

Investment Rationale for Valuation – SELL at GBX 2,652.00

• The Board could not provide detailed guidance for FY2021 due to lack of visibility.
• There are ongoing restrictions in the out-of-home channel due to the Covid-19 pandemic.
• On the profitability front, the net margin since FY2016 has been consistently lower than the industry median of 10.0%.
• On the liquidity front, the current ratio since FY2016 has been consistently lower than the industry median of 1.28x.
• On the leverage front, the debt/equity ratio since FY2019 has been consistently higher than the industry median of 0.70x.
• The stock is trading near its 52-week high price of GBX 2,693.00. Hence, there is doubt about its upside potentials.
• On the technical front, the 14-day RSI at around 62.52 is sustaining below the overbought zone. Hence, there could be a downward movement in the stock price in the near term.

Key Risks

• The payment of dividend could affect the liquidity of CCH.
• The risk of water unavailability could lead to an increased cost of doing business.
• Disruptions in the supply chain could lead to an increase in operating expenses.

Recent News

Admissions to trading on the Athens Exchange: On 10 June 2021, CCH announced the admission of 111,501 ordinary shares to the Athens Exchange for trading.

Issue of Shares: On 1 June 2021, CCH announced the issuance of 92,918 shares of CHF 6.70 each.

Changes to the Board: On 21 May 2021, CCH announced that Mr José Octavio Reyes had plans to retire from the Board of Directors at the conclusion of the annual general meeting on 22 June 2021. 

Q1 FY2021 Trading Update (released on 12 May 2021)

(Source: LSE Website)

• Driven by decent performance in the Emerging segment, Sparkling and Energy and strong execution in the at-home channel, CCH achieved an FX-neutral revenue increase of ~2.7% in Q1 FY2021.
• Volumes were up ~4.7% on a like-for-like basis, driven by a surge of 10.7% in Sparkling and Energy.
• CCH gained or maintained its value share in Non-alcoholic ready-to-drink and Sparkling in most markets.
• The Company witnessed decent progress in Costa Coffee, which is selling in 16 markets.
  

One Year Share Price Chart

(Analysis done by Kalkine Group)

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

Conclusion

For FY2021, the management expects a solid recovery in FX-neutral revenues, with a slight increase in EBIT margin. However, the shape and speed of the recovery from the Covid-19 pandemic remain uncertain. Hence, it would be prudent to liquidate the position at a profit as the stock is also trading near its 52-week high, indicating overstretched valuation. Overall, we do not have significant catalysts to support an uptick in the stock price and recommend exiting the position currently. The stock made a 52-week low and high of GBX 1,712.00 and GBX 2,693.00, respectively.

Considering the lack of detailed guidance due to macroeconomic uncertainty, poorer profitability, liquidity and leverage position of the Company than the industry, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Coca Cola HBC AG at the closing market price of GBX 2,652.00 (as of 18 June 2021), while we look forward to reinvesting based on the recovery of FX-neutral revenues and when there is more clarity about future growth.

Rank Group Plc

Rank Group Plc (LON: RNK) is an FTSE 250 index listed company founded in 1937. It is a multi-channel gaming operator with a well-established gaming-based entertainment brand.

On 19 August 2021, RNK is expected to announce its FY2021 results.

Investment Rationale for Valuation – SELL at GBX 170.00

• During Q3 FY2021, net gaming revenues were down 72% YoY.
• Due to lack of visibility, the management refrained from offering detailed guidance for FY2021.
• On the profitability front, the EBITDA margin in H1 FY2021 has been lower than the industry median of 6.2%.
• On the liquidity front, the current ratio since FY2019 has been consistently lower than the industry median of 0.90x.
• On the leverage front, the debt/equity ratio since FY2020 has been consistently higher than the industry median of 0.78x.
• The stock is trading near its 52-week high price of GBX 216.50, raising doubts about its upside potential.
• From a technical standpoint, 20-day EMA (~GBX 182.96) is above the stock price. Hence, there could be potential short-term downward movement in the stock price.

Key Risks

• Non-compliance with strict regulations and restrictions may result in license cancellations.
• The economic downturn could adversely impact consumer confidence and spending. Hence, demand for products could be reduced in the near term.
• The supply chain and venue are exposed to operational risks, increasing costs.

Recent News

Safer Gambling Tool: On 11 June 2021, RNK announced the launch of a new real-time safer gambling monitoring tool to detect changes in player behaviour. 

Q3 FY2021 Trading Update (released on 22 April 2021) 

• During Q3 FY2021, all UK venues were closed. It led to net gaming revenue down 72% YoY, Venues revenue down 98% YoY, and digital revenue declining 3% YoY.
• However, on a positive note, digital revenue was up 4% QoQ.
• RNK, at the end of Q3 FY2021, had total cash and facilities of £89.8 million, which helped it achieve the minimum liquidity covenant of £50.0 million.
• The cash reserve was further strengthened by the sale of Blankenberge casino in Belgium and its £25 million proceeds.

One Year Share Price Chart

(Analysis done by Kalkine Group)

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

Conclusion

The Company continues to make decent progress on its Transformation 2.0 plans to drive the next phase of its growth. It was also scheduled to pay £19.7 million as term loan amortisation. Moreover, UK venues are reopening. Meanwhile, the stock is trading very close to the 52-week high of GBX 216.50. RNK had highlighted the lingering effects of the Covid-19 pandemic in several of its markets. The stock made a 52-week low and high of GBX 82.50 and GBX 216.50, respectively.

Considering the lack of detailed guidance, poorer profitability, liquidity and leverage position of the Company than the industry, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Rank Group Plc at the closing market price of GBX 170.00 (as of 18 June 2021), while we will revisit our stance based on the analysis of future corporate announcements released by the Company.

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

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

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

Disclaimer

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