Broyhill Asset Management on Coca-Cola Hellenic (CCH)

An investment in CCH represents a compelling opportunity to own a high quality business characterized by high customer captivity with significant economies of scale at a substantial discount to intrinsic value.  Shares have been dragged down by the weight of the Greek stock index at the same time that revenues have suffered from volume declines in established markets, further compounded by double-digit cost inflation which has proven to be detrimental to margins. Importantly, each of these factors appears to be transitory.  If we are right, we should get paid in two ways as both the earnings and the multiple improve.

The coming shift in the company’s listing from Athens to London appears to have sparked a change in investor sentiment.  We expect this move to serve as an inflection point for the stock, driving further multiple expansion over time.  While current sales and future growth are largely driven by the world’s emerging market population, investors have been unable to take their eyes off of the slow-motion European train-wreck represented by CCH’s more mature market exposure – at least until now.  We believe the voluntary share exchange and the London listing should do the trick and properly refocus investor attention on fundamentals.