Investments In Emerging Markets Like Nigeria And Egypt Will Strengthen Market Presence

Key Takeaways

• Strategic investments in high-potential categories and sustainability are expected to drive growth and strengthen brand loyalty.
  
• Focus on data insights and emerging African markets aims to boost efficiency, profitability, and earnings growth.
  
• Geopolitical and macroeconomic challenges, along with inflation and execution risks, may pressure Coca-Cola HBC's revenue and margin growth despite strategic investments in sustainability and expansion.

Catalysts

Engages in the production, distribution, and sale of non-alcoholic ready-to-drink beverages under franchise in Switzerland, the United Kingdom, North and Central America, rest of Europe, the Nordic countries, and internationally.

• Coca-Cola HBC is investing in strengthening its portfolio, particularly in high-potential categories like Sparkling, Energy, and Coffee. These investments are expected to drive future revenue growth by expanding product offerings and capturing more market share in these segments.
  
• The company is focusing on embedding data insights and analytics capabilities into its operations, which can enhance decision-making and improve efficiencies. This focus is likely to positively impact net margins through more effective allocation of resources and better targeting of consumer segments.
  
• Coca-Cola HBC is making strategic investments in sustainability efforts, particularly in packaging and climate. These efforts are expected to appeal to environmentally conscious consumers and can potentially lead to increased revenues and improved brand loyalty in the long term.
  
• The acquisition and integration of Finlandia represent a significant step in expanding the company's Premium Spirits portfolio. This is expected to enhance revenue per case and provide a new growth engine within the 24/7 strategy by leveraging the mixability credentials and cross-promotional opportunities.
  
• Coca-Cola HBC's strategic focus on emerging African markets like Nigeria and Egypt, along with continued investments in those regions, aims to drive volume growth and profitability. Improvements in local market conditions and a focus on affordability through adaptable packaging solutions could contribute to earnings growth over time.

Coca-Cola HBC Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Coca-Cola HBC's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.6% today to 8.5% in 3 years time.
• Analysts expect earnings to reach €1.1 billion (and earnings per share of €3.11) by about February 2028, up from €820.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.4x on those 2028 earnings, down from 17.6x today. This future PE is lower than the current PE for the GB Beverage industry at 18.5x.
• Analysts expect the number of shares outstanding to decline by 0.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.77%, as per the Simply Wall St company report.

Coca-Cola HBC Future Earnings Per Share Growth

Risks

• The macroeconomic and geopolitical backdrop remains challenging, particularly in emerging markets, which includes significant currency headwinds. This could put continued pressure on revenue growth and margins.
  
• Inflationary pressures on commodities, such as aluminum, freight costs, and packaging materials, persist despite some improvements, potentially impacting cost structures and net margins.
  
• The company's reliance on volume growth in certain segments, like Coffee, which is still early in its market journey, might face hurdles if consumer trends or competitive dynamics change, affecting revenue growth.
  
• The company's investment in sustainability initiatives, while valuable for long-term growth, could increase operational costs in the short term, potentially impacting net earnings in challenging financial periods.
  
• While capital allocation focuses on growth through investments and acquisitions, uncertainties in execution or unfavorable market conditions might delay returns on these investments, impacting future earnings growth.

Valuation

• The analysts have a consensus price target of £33.109 for Coca-Cola HBC based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £37.8, and the most bearish reporting a price target of just £25.72.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €13.0 billion, earnings will come to €1.1 billion, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 5.8%.
  
• Given the current share price of £33.08, the analyst price target of £33.11 is 0.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.