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Morgan Stanley hikes target on Coca Cola HBC, notes M&A speculation

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Morgan Stanley hikes target on Coca Cola HBC, notes M&A speculation

Fri, 22 September 2017
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Morgan Stanley hikes target on Coca Cola HBC, notes M&A speculation

(ShareCast News) - Analysts at Morgan Stanley revised their target price for CCH shares sharply higher, telling clients the improvement in the Coca Cola bottler's fundamental drivers looked "sustainable", while adding that its strategic optionality constituted an 'upside' risk for the shares.


"Whilst we continue to believe the soft drinks industry faces structural challenges, we note that improving macro and a healthier consumer outlook across CCH markets should support a sustainable improvement in top-line growth," they said.

Year-to-date the stock was up by 43% as management forged ahead on reaching its target for 11% EBIT margins by fiscal year-end 2020, leading to upgrades from the analyst consensus which in turn had driven a re-rating in the company's valuation multiples. Tailwinds from FX movements - given that the company earns euros but reports in Sterling - were also cited as a factor behind the recent share price appreciation.

In terms of strategic optionality, the analysts noted reports that the outfit was among the bidders for Coca Cola Beverages Africa.

Such a transaction would be double digit accretive for the firm's earnings per share. It would also speed-up its growth profile over the medium-term and top line growth, Morgan Stanley said.

Nonetheless, and on a more cautionary note, they added: "We take no view on the outcome of CCH's rumoured bid for CCBA or the specific timing, but highlight this as a potential upside risk to our price target."

There was also potential for a move to 'optimise' the balance sheet, resulting in cash returns and special dividends which had now been incorporated into its 'base' and 'bull' cases.

On the back of all of the above, the broker raised its target from 1,800p to 2,400p and lifted its recommendation from 'underweight' to 'equalweight'.

"Despite ~5% downside to our price target,given balanced risk-reward and uncertainty surrounding the potential acquisition of CCBA (CCH is under levered and managementhas not ruled out larger M&A)."