Monday 16 December 2019

Buying Coca-Cola Hellenic – it's no longer all Greek to me

When that stylish poker mov-ie 'The Cincin- nati Kid' was released in the middle of the 1960s, it quickly assumed cult status. The on-screen electricity between "The Kid", played by the super-cool Steve McQueen, and the veteran card sharp, Lancey "The Man" Howard, played by the even cooler Edward G Robinson, had everyone who'd ever split a deck of cards marvelling at the amount of philosophy that could be packed in to a few hands of poker. At one stage during the film, as he scoops up his big winnings, "The Man" tells "The Kid," it was a matter of "doing the right thing at the wrong time".

There is no doubt that in the investment game that can be a worthwhile line to follow. It can also be as useful or as useless as the advice that the investment genius Baron Rothschild handed down to an admirer in the 19th Century. "How did you acquire your great wealth?" the admirer asked. "I sold below the top and bought above the bottom," the Baron helpfully replied.

However, doing the right thing at the wrong time was an investment tactic that occurred to me a few months ago. I was in the Whitewater Shopping Centre in Newbridge with three of my brother's children. As soon as we arrived, the kids split up. One headed off to buy a pizza, the second targeted the burrito stand and the third wanted a bagel. The three found their way back to a central point because each wanted to finish their chosen snack with a Coke. While they were tucking in, I decided I'd tease out this Coke phenomenon. Rustling through my ever-ready bundle of newspapers, I discovered that the Coca-Cola Corporation was boasting a New York share price of $78 and a P/E multiple of 21. At the time, this was a bit too rich for me.

Instead, I thought I'd check out those who make money out of Coca-Cola consumption in Ireland. I was a little surprised to discover that this is all done by a Greek company called Coca-Cola Hellenic Bottling Co. Sitting in Newbridge and thinking of investing in Greece in the middle of 2012 would have been an act of super-human bravery, unequalled since the Trojan War.

But if you are imbued by the philosophy of "investment by looking around" then you owe it to yourself to check out the evidence of Coke consumption by the children of north Kildare.

The story of Coca-Cola Hellenic is a saga that has become increasingly un-Greek this year, and from an investment point of view it has shed a lot of the unglamorous image that it might have been thought to have.

Tony O'Reilly's Fitzwilton group was among the first to identify the investment charms of Coca-Cola Bottling back in the 1970s, but there have been some even more dynamic changes in Hellenic in recent times. The company in its present structure was shaped in 2000 with the merger of the Athens-based firm with a spin-off from Coca-Cola Amatil. The present company is 23pc owned by Kar Tess Group, a subsidiary of the Greek David group; 23pc is owned by Coca-Cola Corp; and the remaining shares are traded in London and Athens. Hellenic accounts for some 20pc of the entire Athens stock exchange, has a market cap (value) of €6bn and employs 42,000 people in 28 countries.

Hellenic (sales €7bn) has a presence north and south of the border in Ireland. It distributes other fruit juices and owns the Deep River Rock label for bottled waters.

Just in the last couple of months, Hellenic announced that it was shifting its headquarters to Switzerland. It is also having its shares included in the FTSE 100 share index. It should easily be able to slot itself among the top 75 companies in the UK. The reason given for moving is the lack of liquidity in Greece and that 95pc of its revenues and shareholders are outside Greece. I assume a 45pc profits corporation tax in Greece does not help. However, some Hellenic bondholders are concerned as to the company's plans.

Over coffee, Lady C said that, in her opinion, the move of Irish companies United Drug and Greencore plc to London has benefited shareholders; so buying Hellenic earlier this year would indeed have been, as Edward G might say, "doing the right thing at the wrong time".

Dr John Lynch is a former chairman of CIE. Nothing published in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares mentioned.

Irish Independent

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