Research Report of Coca Cola Hellenic BC SA

Abstract

• We initiate coverage of Coca Cola Hellenic with an accumulate rating and a target price of 14,57 €, which offers a 16,56% upside from the current stock price as of 12/01/2012. CCHBC is the largest European manufacturer of beverages and one of the leading players in the sparkling category in Europe and West Africa. After the successful turnaround of its business, and the recent downturn of the central-Western European and the Balcan economies, CCHBC‘s main growth drivers are differentiation by new innovative healthier products and reduction of the operation cost. • CCHBC will grow revenues and margins as there are improvements in economic conditions to Developing and Emerging Markets in East Europe. Expansion in Russia and Nigeria, the launch of new healthier products, will consolidate volume growth with a 2,3% CAGR from 2011 to 2014. EBITDA margin will increase by 2011-2014 from 13% to 13,5%, also because of efficiency improvements in operations with the SAP Wave II platform in 20 countries. • The net financial position is expected to stabilize. Supported by volume growth and margin expansion, Operating Cash Flow is expected to increase, and OCF to sales ratio to rise from 11,6 in 2011 to 12,2 in 2014. Based on our estimates, CCHBC‘s net financial position will stabilize around € 2,415.5 M from 2011 to 2014. This fact will leave CCHBC with ample financial flexibility to expand the production capacity and gain market share. • Valuation. Our valuation methods lead to a target price of 14,57 € by the start of 2012. We think CCHBC may offer long term upside if it succeeds in executing its 2011-2014 business plan. This fact will be crucial for CCHBC as the economic crisis impact the demand in its established markets. We evaluate Coca Cola Hellenic by applying two techniques: Discount Cash Flow and Multiple Analysis. • The main risks to our target price are the failure to expand into new markets due to unsuccessful product launches and the increase in the level of competition in current markets. Other risks come from lower than expected growth in Emerging Markets, volatility in exchange rates, and a stronger than expected increase in PET resin, sugar, juice concentrate, and fuel costs.