Investment In SAP Technology And Philippines Acquisition Will Strengthen Future Operations

Key Takeaways

• Acquisition and integration in the Philippines signals strong long-term growth, positively impacting revenue and earnings.
  
• Investment in the APS markets and digital technology enhances operational efficiency, supporting revenue growth and profitability.
  
• Inflationary pressures, adverse weather, and geopolitical events in Indonesia threaten Coca-Cola Europacific's revenues, margins, and earnings, highlighting operational and market challenges.

Catalysts

Produces, distributes, and sells a range of non-alcoholic ready to drink beverages.

• The acquisition and integration of the Philippines business, which delivered double-digit volume growth and operating margin expansion, indicates a strong long-term growth opportunity that could positively impact revenue and earnings.
  
• The strong performance and investment in the APS (Australia Pacific and Southeast Asia) markets, including a focus on high-growth categories and markets like the Philippines and Indonesia, could act as a catalyst for future revenue growth and diversification.
  
• The commitment to share buybacks, with a new €1 billion program, is expected to enhance earnings per share through reduced share count, which is often viewed positively by investors.
  
• Efficiency and productivity programs across supply chains and shared services, aimed at delivering between €350 million and €400 million of efficiencies by 2028, could lead to margin improvements and increased profitability.
  
• Increased investment in digital and technology, including new SAP architecture and enhanced forecasting capabilities, further supports operational efficiency and could bolster earnings and net margins over time.

Coca-Cola Europacific Partners Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Coca-Cola Europacific Partners's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.9% today to 9.3% in 3 years time.
• Analysts expect earnings to reach €2.2 billion (and earnings per share of €4.94) by about February 2028, up from €1.4 billion 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 21.0x on those 2028 earnings, down from 27.2x today. This future PE is lower than the current PE for the US Beverage industry at 38.8x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.45%, as per the Simply Wall St company report.

Coca-Cola Europacific Partners Future Earnings Per Share Growth

Risks

• Adverse weather in Europe, particularly during Q2 and Q3, has contributed to softer volumes, potentially impacting future revenue growth projections.
  
• Noncash impairment charge related to the Indonesian business unit indicates challenges in that market, which could influence overall earnings negatively.
  
• Inflationary pressures, especially in labor within manufacturing, and increased concentrate costs may affect net margins if not offset by efficiency gains.
  
• There are strategic risks related to promotional optimization and pricing in the away-from-home channel, which may impact future revenue per case if consumer response is weaker than anticipated.
  
• Geopolitical events in Indonesia have significantly affected volumes, posing risks to operating margins and earnings if such conditions persist.

Valuation

• The analysts have a consensus price target of €83.715 for Coca-Cola Europacific Partners 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 €91.49, and the most bearish reporting a price target of just €67.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €23.3 billion, earnings will come to €2.2 billion, and it would be trading on a PE ratio of 21.0x, assuming you use a discount rate of 5.4%.
  
• Given the current share price of €83.7, the analyst price target of €83.71 is 0.0% 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.