David Cheetham | Coca-Cola HBC’s results allay much of analysts’ concerns

David Cheetham, market analyst at commodities broker XTB UK, says one of Coca-Cola’s largest bottlers has recorded positive earnings amidst pessimistic analysts’ expectations.

David Cheetham

Coca-Cola HBC’s results for the year ended December 31st 2015 showed growth in both the developed and emerging market sectors, with the return to an expansion for the former marking the first such occurrence in five years.

The FTSE listed company has been subject to several downgrades to its expected future share price from investment banks over the past few months, seemingly due to concerns regarding the challenging conditions that remain present in its emerging markets business which sees the Lion’s share of its turnover.

Whilst net sales revenue did contract by 2.5%, this was largely due to a 5.1% adverse foreign exchange impact, an outcome that, despite not being good, was better than some had feared.

In particular, the heightened currency volatility in the Russian rouble and Nigerian naira due to the large moves in the oil price, were seen as troublesome for one of the leading bottlers for the Coca-Cola company, as it conducts a significant proportion of its business there.

With this in mind the growth of 2.50% for the emerging market segment will go some way to alleviate these fears, with double-digit growth in Nigeria, Romania and Ukraine the highlights.

Additionally, sales volume grew in all developed markets, with Greece posting a second successive year of gains and Italy returning to positive territory following last year’s contraction.

The 2.6% rise in total revenue for this area shows continued growth with sales volumes higher than last year in all developed markets. Combined with the strong performance in Emerging markets, the overall view of these results seems fairly positive and the initial reaction in the stock price, with a pop higher of 2.6% on the day following their release, seems to support this.

Arguably the most widely viewed metric when analysing a company’s earnings is the comparable earnings per share (EPS) and a rise in this reading to 0.864, marks a significant improvement on last year’s 0.809.

One of the main contributing factors for this favourable reading was a drop in operating expenses of 2.4%, showing greater efficiency in the business. The 11.1% increase in dividend to 40 Euro cents (31.2p at current exchange rates) adds to the attractiveness of Coca-Cola HBC to prospective investors seeking a return on their capital in the current so-called zero interest-rate policy (ZIRP) environment.

Whilst a 2% dividend yield isn’t large in nominal terms, it still represents a higher return on investment than one can expect in the fixed income space.

In conclusion, there’s no doubting this report is far from stellar, and macroeconomic conditions such as the persistent slump in oil prices will continue to affect the company’s Russian business. However in my opinion this earnings report, in general, is resolutely strong.

Despite the broader market struggles and continued economic headwinds facing all stock markets around the globe, on the basis of this report, Coca-Cola HBC seems to have solid foundations to continue to build on its strong performance in 2015 which saw shares in the company rise by more than 20%. When you also consider the growing profitability and dividend payout previously mentioned it appears that many analysts’ were too pessimistic on this stock, and this suggests there’s the potential for further gains this year.

David Cheetham is a market analyst at commodities broker XTB UK.