Coca-Cola HBC serves up record results

Coca-Cola HBC (CCH) shares rose 7 per cent after one of the biggest bottling partners of Coca-Cola (US:KO) delivered a better-than-expected performance and raised its dividend by a fifth, as record profits were aided by volume growth of 2 per cent. 

Organic revenue growth of 17 per cent was supported by strong demand for the company's energy drinks and coffee products, which enjoyed volume uplifts of 27 per cent and 32 per cent respectively. Still product volumes fell 4 per cent, however, while sparkling volumes were up by a relatively muted 3 per cent. 

When it comes to the premium spirits category, future growth will be aided by the acquisition of Finlandia Vodka, which the company bought from Brown-Forman in November for a net consideration of €180mn (£153mn). Premium spirits volumes were up 13 per cent in the year. 

On a geographic level, emerging markets led the way on both the organic revenue and volume performance. The company's biggest reporting segment, which trades in countries such as Nigeria and Egypt, contains the company's Russian business (Multon) which focuses on local juice ranges. The consolidation of Multon for seven months of the year was a key revenue driver. 

The company relied on pricing action in its developing and established markets, where it posted double-digit revenue growth despite overall volumes contracting. Strong volume growth in emerging markets was enough to put the overall figure in the black.

Free cash flow hit a record €712mn, up 10.3 per cent on last year, as comparable operating profit rose 17.7 per cent to €1.08bn. 

The margin performance was aided by softening cost pressures in the second half, as the gross margin rose 80 basis points to 35 per cent. Easing cost headwinds also helped organic net sales revenue per case, which climbed by over 11 per cent. 

The results come after Coca-Cola outperformed key rival Pepsi (US:PEP) with its latest results. Coca-Cola owns over a fifth of CCH. 

CCH also announced last week that company veteran Anastasis Stamoulis will become its new finance chief in May, after current CFO Ben Almanzar said last month that he will stand down. 

The shares trade hands at 12 times forward consensus earnings, compared to a 5-year average of 17 times. The case for CCH being undervalued remains strong, after this robust performance. While management expects growth to moderate in 2024 – it forecasts organic revenue and operating profit to grow by 6-7 per cent (in line with its medium-term target range) and 3-9 per cent respectively – things continue to head in the right direction. Buy. 

Last IC view: Buy, 2,121p, 09 Nov 2023