Solid profitability on
strong pricing environment & low input costs
In 3Q12, CCI posted TRY193.6m net income, slightly above our estimate of TRY185.5m thanks to higher than expected FX income. However, posted EBITDA was in line with our estimate. Posted EBITDA and net income beat consensus figures. Only surprise was lower volume growth in its Turkish operations due to lower than expected volumes in low margin tea sales.
EBITDA margins increased sharply in international operations
In both its international and Turkish operations, the company was able to raise unit prices remarkably in an environment of easing input cost pressures on lower sugar and resin prices. Moreover, economies of scale helped operating expenses in the international operations remarkably. We believe low prices for sugar and resin may not last long.
TP up by 15% on favourable peer valuations and lower cost of debt
On peer comparisons, the relative premium declined on the strong run of beverage stocks the last six months. Our DCF valuation also increased to TRY34.29 from TRY29.84 due to low cost of debt. We raise our EBITDA and net income forecasts slightly for 2013 and 2014. Our fair value is based on a blended valuation, assigning 50/50 weights to DCF method and peers.
Earnings upgrade was due to international operations
In our view, the current pricing environment will remain intact for 2013 and 2014, accordingly helping profitability margins. However, current levels of sugar and resin prices may not be sustainable in the medium term for CCI’s international operations. In our estimates, we plug in a rise in input costs from 2013 onwards. However, the current pricing environment should allow the company to maintain its profit margins. Hence, we raise our EBITDA and net income estimates for 2013 by 4% and for 2014 by 3% for the company. Worse-than-expected weather conditions pose a major downside risk to our projections and target price and new bottling right acquisitions are a key upside risk.
In 3Q12, CCI posted TRY193.6m net income, slightly above our estimate of TRY185.5m thanks to higher than expected FX income. However, posted EBITDA was in line with our estimate. Posted EBITDA and net income beat consensus figures. Only surprise was lower volume growth in its Turkish operations due to lower than expected volumes in low margin tea sales.
EBITDA margins increased sharply in international operations
In both its international and Turkish operations, the company was able to raise unit prices remarkably in an environment of easing input cost pressures on lower sugar and resin prices. Moreover, economies of scale helped operating expenses in the international operations remarkably. We believe low prices for sugar and resin may not last long.
TP up by 15% on favourable peer valuations and lower cost of debt
On peer comparisons, the relative premium declined on the strong run of beverage stocks the last six months. Our DCF valuation also increased to TRY34.29 from TRY29.84 due to low cost of debt. We raise our EBITDA and net income forecasts slightly for 2013 and 2014. Our fair value is based on a blended valuation, assigning 50/50 weights to DCF method and peers.
Earnings upgrade was due to international operations
In our view, the current pricing environment will remain intact for 2013 and 2014, accordingly helping profitability margins. However, current levels of sugar and resin prices may not be sustainable in the medium term for CCI’s international operations. In our estimates, we plug in a rise in input costs from 2013 onwards. However, the current pricing environment should allow the company to maintain its profit margins. Hence, we raise our EBITDA and net income estimates for 2013 by 4% and for 2014 by 3% for the company. Worse-than-expected weather conditions pose a major downside risk to our projections and target price and new bottling right acquisitions are a key upside risk.
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