Coca-Cola European Partners Less Favorable Than Other Coke Bottlers -Credit Suisse

Credit Suisse’s Sanjeet Aujla believes that while Coca-Cola European Partners plc Ordinary Shares CCE now has a stronger business following the merger with the Iberian and German bottlers, organic growth is likely to remain at the low end of the low-single-digit guidance.

Aujla initiated coverage of the company with a Neutral rating and price target of €37.

“Synergies give some degree of earnings visibility; however, we don’t expect upside to targets, and balance sheet activity is unlikely until FY18,” the analyst elaborated.

Limited Organic Growth

Aujla expressed concern regarding Coca-Cola European Partners’ organic growth, given that 83 percent of the company’s volumes come from CSD, which continue to decline. In addition, the company has been losing market share in CSDs across major markets, and Europe was expected to potentially see additional regulatory headwinds due to the sugar debate.

Related Link: Citigroup Upgrades Coca-Cola Femsa Citing Valuation, Says 2017 Cost Outlook Remains Mixed

Also, the analyst noted that Coca-Cola European Partners might require additional investments if the weak market conditions continue.

Returning Cash To Shareholders

Although little balance activity is expected in the near term, Aujla acknowledged “management's strong cash return track record,” expecting return of cash to shareholder or further consolidation of the Coke network, with potential opportunities across North/West Africa and Europe.

“Our FY16–18E EPS estimates are 3–4 percent below consensus, driven by a weaker topline outlook due to soft category growth, potential macro-risk (UK) and regulatory pressures,” the analyst added.

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