Coca Cola HBC AG – Encouraged by Positive Signs as Market Reopen

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.

Recent News

7 July 2020: The Company announced the appointment of Naya Kalogeraki for the newly created role of Chief Operating Officer, effective from 1 September 2020.

Half-Yearly Results (for the six months ended 26 June 2020)


(Source: Company Website)

As per the update released on 5 August 2020, the Company continued to maintain the market share in Sparkling and Non-alcoholic ready-to-drink. In H1 FY20, net sales revenue declined by 14.7% (versus H1 FY19) on an FX-neutral basis to €2,831 million. However, the supply chain remained fully operational throughout the Covid-19 crisis. The comparable net profit and comparable earnings per share were 42.1% and 42.0% lower than in the prior-year period, respectively. Moreover, the lower operational profitability, coupled with a deterioration in working capital drove free cash flow down. Nevertheless, the liquidity position at July end remained robust with nearly €1 billion of cash and time deposits, after the dividend payment. In H1 FY20, the net finance cost increased by €3.4 million due to higher borrowings.

Share Price Performance


1-Year Chart as of 6 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)
 

Coca Cola HBC AG’s shares closed trading at GBX 2,172.00 on 6 August 2020, down by 1.18% against the last day closing price. Stock 52 week High and Low were GBX 2,933.00 and GBX 1,393.10, respectively.

From the technical standpoint, 14-day RSI is currently in the oversold zone, which means there is a good potential for a short term rebound in the stock price.
 
Valuation Methodology

 
Risk Assessments

Due to Covid-19 situation, the consumer environment is weak, and it may impact the profitability in FY20. Moreover, the risk of water unavailability can lead to an increased cost of doing business. Also, the inability to adopt the changing consumer health trends and health policies can lead to a loss of consumer base. The increasing cyber-attacks with Covid-19 migration can arise lead to operational disruption and financial loss. Furthermore, volatility in foreign exchange rates amid recessionary economic condition can increase the cost base.

Conclusion

The strong performance on market share amid challenging market conditions demonstrates the power of the portfolio of brands. Moreover, current trading continues to confirm sequential improvement. However, there is uncertainty about the duration and extent of social distancing and other measures. Therefore, the Company could not provide full financial guidance for FY20.  Notwithstanding, the Company expects net finance cost to be nearly €70 million in FY20. During H1 FY20, the strong cost control has already brought €61 million of €100 million savings planned for the year. Overall, the Company has a resilient business model, and it is well-positioned to adapt as markets reopen and shall emerge even stronger.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing market price of GBX 2,172.00 (as on 6 August 2020) and will recommend fresh buying at the right time.

Nichols PLC – CEO stepped down after seven years

Nichols PLC (LON: NICL) is a FTSE AIM 50 index listed Company, which is engaged in a soft drinks business. It sells both the still and carbonate categories. The major brands include Vimto, Feel Good, Starslush, Levi Roots, Sunkist, among others.

Recent News:

22 July 2020: James Nichols joined the board of NICL as a Non-Executive Director with immediate effect. The members of the Nichols family current hold approximately 34.7% in the Company's issued share capital.

Interim Results for the half-year ended 30 June 2020

(Source: Company Website)

As per the H1 FY20 update released on 22 July 2020, the Company reported a strong cash performance in the period with cash conversion at 121% and free cash flow of more than £6.7 million. However, the total revenue and EBITDA declined against the same period last year by 17.3% and 39.2%, respectively. The Group performance was affected by Covid-19 in both the carbonates and still product categories. However, in the Middle East, the sales of Vimto brand were resilient throughout Ramadan while African sales for Vimto grew by 8.7% to £8.3 million (H1 2019: £7.6 million). Nevertheless, due to continued uncertainties, financial guidance remained withdrawn. Further, the Company updated that the current chief operating officer, Andrew Milne will succeed as a chief executive officer from 1 January 2021.

Share Price Performance


1-Year Chart as of 6 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)
 

NICL’s shares closed trading at GBX 1,188.00 on 6 August 2020, up by 0.04% against the last day closing price. Stock 52 week High and Low were GBX 1,880.00 and GBX 858.00, respectively.

From the technical standpoint, 14-day RSI is currently in the oversold zone, which means there is a good potential for a short term rebound in the stock price.
 
Valuation Methodology
  

Risk Assessments

Regarding the potential risks, supply could be an issue if Vimto relies on a single source for the compound. Moreover, the government programme - ‘Deposit Return Scheme’, which is to be implanted in the UK in 2023 and Scotland from 2021, can impose legislative challenges and can increase complexity for promoting single-use plastic and recycling. The soft drinks market is a highly competitive market which is heavily driven by promotions, and hence, any negative publicity can massively hit brand performance. Some additional risks to be looked at - failure to expand portfolio due to the rising health concerns; inventory shortage due to supply chain disruption presented by COVID-19 mayhem, and the risk associated with the climate change.

Conclusion

The outlook for H2 FY20 is still uncertain due to the prolonged and intensified impact of Covid-19 pandemic. Therefore, the recovery of Out of Home (OoH) is not currently predictable. Notwithstanding, with ancestry of 112 years, the Company has successfully weathered substantial changes and challenges earlier too. The management stays confident in Nichols' ability to emerge from such an unprecedented period. It continues to deliver the Group's long-term growth plans while leveraging the strength of the NICL's brands, strong balance sheet and diversified business model.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing market price of GBX 1,188.00 (as on 6 August 2020) and will recommend fresh buying at the right time. 
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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