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Is Coca Cola HBC AG The Ultimate Retirement Share?

The last five years have been tough for those in retirement. Portfolio valuations have been hammered and annuity rates have plunged. There’s no sign of things improving anytime soon, either, as the eurozone and the UK economy look set to muddle through at best for some years to come.

A great way of protecting yourself from the downturn, however, is by building your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.

In this series, I’m tracking down the UK large-caps that have the potential to beat the FTSE 100 over the long term and support a lower-risk income-generating retirement fund (you can see the companies I’ve covered so far on this page).

Today, I’m going to take a look at Coca Cola HBC AG (LSE: CCH) (NYSE: CCH.US), The Coca-Cola Company’s European bottling operation, which transferred its primary listing from the Athens Stock Exchange to the LSE earlier this year, and is now a member of the FTSE 100.

Coca-Cola HBC vs. FTSE 100

Coca-Cola HBC has only been trading on the LSE for a few months, and I haven’t been able to find detailed performance data for its listing on the Athens Stock Exchange, but the firm does provide a tool for calculating the total return from an investment in its shares on its website, so I’ve used this to compare Coca-Cola HBC’s performance with that of the FTSE 100:

Total Returns 2008 2009 2010 2011 2012 2013 YTD 10 yr
trailing avg
Coca-Cola HBC -64.9% 53.8% 21.1% -31.6% 33.6% 13.7% 6.1%
FTSE 100 -28.3% 27.3% 12.6% -2.2% 10.0% 14.5% 8.0%

Sources: Company data (CCH) & Morningstar (FTSE 100)

(Total return includes both changes to the share price and reinvested dividends. These two ingredients combined are what make it possible for equity portfolios to regularly outperform cash and bonds over the long term.)

Coca-Cola HBC’s trailing 10-year average return of 6.1% is slightly lower than the FTSE 100’s 8.0%, but it is still a fairly respectable average, especially given the impact that Greece’s financial crisis has had on the shares traded on the Athens Stock Exchange.

What’s the score?

To help me pinpoint suitable investments, I like to score companies on key financial metrics that highlight the characteristics I look for in a retirement share. Let’s see how Coca-Cola HBC shapes up:

Item Value
Year founded 1969
Market cap £6.1bn
Net debt £1.8bn
Dividend Yield 1.7%
2012 financials
Operating margin 16.2%
Interest cover 3.8x
EPS growth -16.0%
Dividend growth n/a
Dividend cover 1.5

Here’s how I’ve scored Coca-Cola HBC on each of these criteria:

Criteria Comment Score
Longevity 44 years isn’t bad. 3/5
Performance vs. FTSE Slightly below the index. 3/5
Financial strength A reasonable level of debt and strong cash flow. 4/5
EPS growth Falling for the last three years, but remains profitable. 3/5
Dividend growth An irregular dividend history makes this hard to predict. 2/5
Total: 15/25

Coca-Cola HBC scored a middling 15/25 in my review, but its irregular dividend payments and low yield rule it out as a retirement share, in my opinion. 

Today's top growth buy?

Coca-Cola HBC's shares currently trade on a forecast P/E ratio of 25, which looks expensive to me.

Happily, the Fool's analysts have identified another growth story that currently trades on just 15 times forecast earnings and pays a regular dividend. The company in question outperformed the FTSE 100 by 32% in 2012, has delivered earnings per share growth of 44% since 2009, and is ahead of the FTSE so far this year.

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> Roland does not own shares in any of the companies mentioned in this article.