Analysts at UBS have double-upgraded Coca-Cola HBC AG (LON:CCH) to ‘buy’ from ‘sell’, saying that following a recent share price fall, the firm presented “an attractive entry point for one of the best growth stories in Staples”, adding a special dividend was "most likely" following a strong third quarter.
In a note, the Swiss bank said the FTSE 100 drinks bottler had “organic sales growth at the top end of Staples well balanced between volumes and price/mix”, citing CCH’s average volume growth of around 2% from 2016 to 2018, the “second highest in European Beverages after Heineken”.
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“Going forward we forecast average organic sales growth of +5%, with volumes +3% driven by gradually improving macro condition and CCH's strong in-market execution. On a shorter term basis we expect a strong end to the year with Q4 organic sales + 5.5%, at the top end of Consumer Staples and above the company's latest published consensus”.
Analysts also said that they expected “strong top-line” momentum for 2019 which would leave CCH “well positioned” for margin expansion in 2019/20 despite raw material cost pressures, adding that the firm had “strong operational gearing” which meant every 1% change in volumes and organic price/mix would contribute around 25 basis points and 75 basis points to margins.
UBS also hiked its target price to 2,650p from 2,050p, which was “70% driven by changes in medium- to long-term estimates”, adding that in the absence of any mergers and acquisitions, a special dividend was “most likely”.
In its third quarter results at the start of November, CCH revealed a period of “solid growth” as volumes shipped rose 4.2% compared to last year and a 4.5% increase in revenue on a constant currency basis.
Volume growth was led by the developing and emerging market segments, particularly in the fizzy drinks category.
Following the upgrade, CCH’s shares surged in late-morning, up 5.7% at 2,399p, around a 10% discount to UBS’s new target price.