The New Coke: Coca-Cola European Partners

First I want to appologize that the last post came out unfinished. Thought it was a good Idea to release a post on the first day of trading. I edited the post several times over the day. I plan to not do that again.

As I have written here, Coca-Cola Enterprises, Inc., Coca-Cola Iberian Partners SA and Coca-Cola Erfrischungsgetränke AG, a wholly owned subsidiary of The Coca-Cola Company, have agreed to combine their businesses into a new company to be called Coca-Cola European Partners Plc (CCEP).

Coca-Cola Enterprises shareholders own 48% of the combined company, Coca-Cola Iberian Partners shareholders own 34%, and Coca-Cola – which owned Coca-Cola Erfrischungsgetränke – holds claim to the remaining 18%.

The European Bottling Market for Coke is splited up between the new CCEP and Coca-Cola HBC AG (Swiss, Austria, Italiy, Greece, Eastern Europe, Russia) while Coca-Cola European Partners Plc is the largest Anchor bottler.

The Coca-Cola System or what is a Bottler? The Coca Cola Company (KO) manufactures and sells concentrates, beverage bases and syrups to bottling operations, owns the brands and is responsible for consumer brand marketing initiatives. Coca-Cola bottling partners manufacture, package, merchandise and distribute the final branded beverages to customers and vending partners, who then sell the products to consumers.

 

The Prospectus can be found on https://www.securitiesinfo.com/

Interview with Sol Daurella

You can find a Interview with Sol Daurella, the new chairwoman of Coca-Cola European Partners, who came from Coca-Cola Iberian Partners (here). Some notes from the Interview:

We are projecting between 315 and 340 million euros in synergies and cost efficiencies.

As a new company, we will start with only a 29 percent market share in value across the region, so we see a lot of headroom.

So the consumer in Europe will benefit from a much greater availability of a wider range of leading brands from The Coca-Cola Company,…

Contras:

  • It’s a bottler , it’s not the real “Coke” Company. Paying another company for the right to put its drink in a bottle and its name on the bottle, then delivering it by truck is different too owning the brand (licensing risk)
  • The Investment Case based to some extend on synergies
  • Revenue could go down (trend to a healthier lifestyle)
  • Not growing markets/ no meaningful population growth (link)
  • I still feel that I have missed something (the prospectus has 492 pages)
  • Candidate for a Index drop out (S&P500)?

Pros:

  • Household name, non cyclical consumer product
  • I expect outperformance in a declining market
  • Emerged, politically stable Markets (the first time a german bottler is investable)
  • No big medial Buzz about the IPO/Merger
  • The Merger makes sense
  • Without synergies the price paid is still fair (compared to other bottlers of coke)
  • Still runway left for growth in its markets (29 percent market share)
  • Maybe a new candidate for some indices (STOXX EUROPE 600, FTSE 100?)

 

This is my final calculation:

CCEP_spread3.PNG

In this calculation I assumed that:

  • Revenue, EBITDA & Income will stay flat
  • Synergies ($350mn) will unfold in 2019
  • Tax Rate 28%
  • Debt will be at 3,5x EBITDA, 2% interests rate
  • Shares outstanding stay flat

 

I have not adjusted:

  • Revenue and EBIT – maybe there is some (single digit) growth
  • Tax Rate – maybe tax loopholes in Europe will be closed
  • No FX adjustments
  • No share buybacks, note: Coca-Cola Enterprises was a big canibal (~25% in 5 years) maybe CCEP will be too

You can finde some EPS numbers from CCEP in this presentation (link)

Bottom Line

I bought some shares of CCEP. My investment theory ist mostly based on the fact that European Partners is cheaper than Peer Coca-Cola bottlers. Maybe I am loveblind Berkshire-Hathaway Fan who stopps thinking clear when he sees the name Coca Cola. I think the stock will be traded higher in 5 years – but of course I can not know.

Buy in Portfolio context:

As the market has rallied (or at least not crashed) for about 7 years I want to have enough cash arround. We have the Brexit-voting soon and the FED maybe will raise interest rates this year – I want to be prepared for any scenario so I bought just a small position for my portfolio. I am willing to add to the Position if the price will decline while the business-outlook stays the same.

 

 

Disclaimer: The content contained on this site represents only the opinions of its author(s). I may hold a position in securities mentioned on this site. In no way should anything on this website be considered investment advice and should never be relied on in making an investment decision. As always please do your own research!

 

Additional information material:

CCEP Events and Presentations Site (link)

Short article from fool.com (link)

 

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One thought on “The New Coke: Coca-Cola European Partners

  1. Pingback: Coca Cola European Partners about first Half of 2016 | valuetradeblog

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