Emerging Market Expansion And Fuse Tea's Growth To Continue Boosting Revenues And Margins

Key Takeaways

• Strategic focus on low per capita markets and diverse product portfolio aims to boost volume growth and revenue streams.
  
• Investment in operational efficiency and adapting to consumer trends enhances distribution and revenue per unit.
  
• Macroeconomic challenges, high inflation, and geopolitical tensions are impacting demand and consumer purchasing power, thereby pressuring Coca-Cola İçecek's revenues and profitability.

Catalysts

Engages in the production, sales, and distribution of sparkling and still beverages in Turkey, Pakistan, Central Asia, and the Middle East.

• Coca-Cola Icecek is capitalizing on low per capita beverage consumption in its markets, particularly in countries like Iraq, Kazakhstan, and Azerbaijan, suggesting significant potential for future volume growth and increased revenue.
  
• The company's focus on diversifying its product portfolio with growth in the stills category, exemplified by the performance of Fuse Tea, indicates an initiative that could enhance revenue streams and improve net margins.
  
• Strategic investments in new factories, such as in Kazakhstan, are setting up Coca-Cola Icecek for more efficient operations and improved distribution, which could positively impact earnings through better cost management.
  
• The emphasis on smaller packages and immediate consumption packages reflects a strategic maneuver to optimize the mix and cater to changing consumer preferences, potentially boosting revenue per unit case.
  
• Coca-Cola Icecek's revenue growth management strategy, which prioritizes mix management and optimization over straightforward pricing increases, is designed to drive sustainable revenue and margin growth even in challenging macroeconomic conditions.

Coca-Cola Içecek Anonim Sirketi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Coca-Cola Içecek Anonim Sirketi's revenue will grow by 43.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 13.4% today to 9.6% in 3 years time.
• Analysts expect earnings to reach TRY 26.9 billion (and earnings per share of TRY 9.86) by about January 2028, up from TRY 12.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting TRY 35.5 billion in earnings, and the most bearish expecting TRY 22.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.9x on those 2028 earnings, up from 13.1x today. This future PE is lower than the current PE for the GB Beverage industry at 22.6x.
• Analysts expect the number of shares outstanding to decline by 0.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 28.54%, as per the Simply Wall St company report.

Coca-Cola Içecek Anonim Sirketi Future Earnings Per Share Growth

Risks

• Ongoing macroeconomic pressures, persistent high inflation, and weakening consumer purchasing power, particularly in Turkey, are negatively impacting demand, which in turn could put pressure on revenues and profitability.
  
• The conflict in the Middle East has a spillover effect, leading to prolonged dent on consumer confidence and weakening purchasing power in key operating regions, potentially affecting future earnings growth.
  
• Challenges in international markets, such as a 22.9% decline in Pakistan's volume, due to new taxation and macroeconomic instability, can hamper consolidated revenue and profit margins.
  
• High Turkish inflation combined with lack of minimum wage adjustment is leading to reduced consumer spending, particularly in discretionary items like sparkling beverages, potentially impacting revenue growth and net margins.
  
• The impact of delayed or limited price increases due to efforts to remain affordable amidst macroeconomic challenges constrained EBITDA margins by 458 basis points year-on-year in international operations, which could affect future earnings.

Valuation

• The analysts have a consensus price target of TRY 87.67 for Coca-Cola Içecek Anonim Sirketi 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 TRY 109.27, and the most bearish reporting a price target of just TRY 75.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY 281.1 billion, earnings will come to TRY 26.9 billion, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 28.5%.
• Given the current share price of TRY 59.95, the analyst's price target of TRY 87.67 is 31.6% higher.
• 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.