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Jefferies upgrades Coca-Cola HBC as it enters a 'sweet spot'

11/07/2018 10:55

(Sharecast News) - Jefferies upgraded Coca-Cola HBC to 'buy' from 'hold' on Wednesday and hiked its price target to 3,000p from 2,660p, saying the group was entering a "sweet spot" of growth and M&A optionality given the strong balance sheet. The bank argued that Coca-Cola is poised to benefit from continued strong top and bottom line momentum, with F18-20 organic sales/EBIT growth of 5.6%/11.6%.

In addition, it expects key markets Russia and Nigeria to return to growth from the second quarter. Jefferies said the upgrade to the target price reflects an increase in its standalone value for the company to 2,800p from 2,450p and a 50% probability that the group will acquire a 54.5% stake in Coca-Cola Beverages Africa (CCBA). "To be clear, CCH is attractive in its own right without M&A.

However, with F18E net debt to EBITDA 0.6x, we see the business attractively positioned to take advantage of acquisition opportunities, including transformational deals in Africa." In the absence of the CCBA transaction, Jefferies reckons Coca-Cola could return cash to shareholders through special dividends.

It said a special dividend of €3 per share - a return of around 10% per share - would increase estimated F19 net debt to EBITDA from 0.3x to 1.3, comfortably within the medium-term objective 1.5x - 2.0x. Jefferies also pointed out that as a UK-listed company with no sterling earnings, CCH is attractively positioned for further potential Brexit-related GBP weakness. At 1050 BST, the shares were flat at 2,679p.

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