Home Deep Analysis Coca-Cola European Partners: Continue to Provide Fair Value (NASDAQ: CCEP)

Coca-Cola European Partners: Continue to Provide Fair Value (NASDAQ: CCEP)

by WOOWinvest
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Coca-Cola European Partners: Continue to Provide Fair Value (NASDAQ: CCEP)


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Coca-Cola Euro-Pacific Partners Limited (NASDAQ: CCEP) provides investors with exposure to large Coca-Cola bottlers in Europe and Asia Pacific.

Solid business performance and strong revenue growth.it also starts to see Acquisition of bottler Amatil. Right now, the dividend yield looks particularly attractive. However, I believe the company is fully valued and therefore maintain a “hold” rating.

Business performance remains solid

The business has been solid, and the integration of Amatil appears to be going well. In its quarterly trading update, the company called the integration “very advanced.” I’m concerned about the company’s ability to manage this far-flung business while managing its previous business. Fortunately, however, these doubts have so far vanished.

The company’s latest numbers for the first quarter were good.

Coca-Cola's European Pacific Partners first quarter results

Company Announcement

Broken down by market, it can be seen that the company is performing very strongly from an overall sales perspective.

Coca-Cola's European Pacific Partners First Quarter Results by Region

Company Announcement

This year, the company expects revenue pro forma comparable growth of 8-10%. For operating profit, it forecast pro forma comparable growth of 6-9%.

Looking back over the past few years, while revenue growth has been fairly steady, earnings have changed a lot and don’t show a consistent upward trajectory.

2015

2016

2017

2018

2019

2020

2021

Income (million euros)

6329

9133

11062

11518

12017

10806

13,763

Profit after tax (million euros)

513

549

688

909

1090

498

988

Basic earnings per share (€)

2.23

1.45

1.42

1.88

2.34

1.09

2.15

Chart compiled by the author using data from the company’s annual financial report

Will integrating Amatil and realizing the benefits of the combined scale and reach help improve bottom line? I think so. However, the company’s performance over the past few years has been unspectacular and inconsistent. I don’t think merging by itself will solve this problem.

I do want to improve business performance. This year looks strong, and I expect continued growth over the next few years as synergies from the Amatil acquisition are fully realized. But the company’s track record lacks consistency and can be disappointing in specific markets. So while it’s in growth mode right now, I don’t believe CCEP’s earnings will continue to grow.

Dividends are attractive

The 2020 pandemic aside, the company’s dividend has been growing at a decent rate.

Coca-Cola Euro-Pacific Partners Dividend

CCEP Dividend History

The company has resumed paying a semi-annual dividend. The first dividend of the year was 56c per share. The company said the dividend in the second half of the year will be calculated “with reference to the annualized total payout ratio of approximately 50% for the year.” So, does this equate to another increase in the dividend for the full year? Based on the expected strong business performance this year, I expect that to be the case.

From a dividend standpoint, the stock looks attractive over the long term. At current prices, the dividend yield is 4.3%. I find the yield on its own to be attractive (The Coca-Cola Company (KO) is a different type of business, but it now yields 2.9%). On top of that, the company’s pricing power allows it to keep raising its dividend over the years, which means the expected yield is even higher.

Valuation

The last time I covered this company was in June last year, and I concluded that its valuation was reasonable and gave it a “hold” rating. Since then, the stock has fallen 18%.

They are now trading at 23 times earnings. I don’t think it’s cheap. I do think the company has some attractive features in its business model that give it pricing power. I think the performance of the business may improve over the next few years, and the dividend is attractive. But I don’t think these stocks are cheap. Therefore, I maintain my “hold” rating.

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