Soft-drinks producer and FTSE 100 stock Coca-Cola HBC (LSE:CCH) saw its share price suffer as the pandemic hit hard in 2020. But it’s not all doom and gloom, and I think its future looks bright.
Coca-Cola financials
Coca-Cola HBC is an exclusive bottling partner to The Coca-Cola Company in the US. It also partners with other drinks companies, including Monster Energy. Producing, bottling and selling is its core business, so it depends on these partnerships for growth and profitability.
Based in Switzerland, Coca-Cola HBC has a £9bn market cap and price-to-earnings ratio of 22. The CCH share price is close to its 52-week high of £25.44, therefore it’s not exactly a bargain share. But I see it as a long-term play.
In response to the arrival of the pandemic, the Coca-Cola share price fell as much as 43% between February and March 2020. It then fluctuated for the rest of the year, gradually rising overall.
Coca-Cola HBC released its annual report last month. Net sales revenue fell 12.7% year-on-year in 2020 to €6.13bn and profit before tax fell 10% to €593m. Nevertheless, the company raised its full-year dividend by 3.2%, leading to a yield of 2.3%. Its sales were hit hardest in the out-of-home segment as Covid-19 led to lockdowns in its main market. Nevertheless, this was partly offset by an improvement in the at-home channel.
In the past year, people — by necessity — placed more emphasis on eating and drinking well at home, meaning spends in these categories increased. We use Coca-Cola and other soft drinks as alcoholic mixers as well as drinks in their own right, so this is another reason sales in the at-home market may have risen.
Its energy drinks segment also witnessed growth, which is encouraging as this category offers higher margins than sparkling drinks.
At-home consumption is also a new target market in Russia, where the company is seeing signs of growth, particularly in its adult sparkling range.
Risks to shareholders
As hotels, restaurants and cafes remain closed, or reopen on a reduced capacity basis, Coca-Cola’s out-of-home channel continues to be disrupted. And with Covid-19 not yet eradicated, this could prove problematic for the foreseeable future. But the company has a handle on its liquidity and says it’s confident it can manage both short and long-term risk if lockdowns were to happen again. This includes access to an €800m revolving credit facility.
Investors face the risk of inflation, which would weigh heavily on many FTSE 100 stocks. Plus, foreign exchange rates can affect its income. Commodity pricing can also affect its revenues, particularly when it comes to sugar and aluminium.
Despite the headwinds, I like the potential for such a well-established brand. I think it’s profits will return with vigour when out-of-home socialising resumes. And that could lead to a rising Coca-Cola share price. Therefore, I’d happily add CCH shares to my Stocks and Shares ISA.
