I’ve been an owner of Coca-Cola HBC (LSE: CCH) shares for several years now. I bought it because of its qualities as a safe-haven stock. The immense brand power of the drinks it bottles, along with its huge geographic footprint, enables profits to remain stable even when social, economic or political crises emerge. CCH’s sinking share price in recent weeks tells a different story, however.
The events of the past couple of years have shown that even solid consumer staples businesses like this aren’t immune to weakness . First the pandemic took a bite out of Coca-Cola HBC’s earnings as out-of-home sales slumped during lockdowns. And now the unfolding tragedy in Ukraine threatens to derail CCH’s post-pandemic recovery.
Still falling
Coca-Cola HBC’s share price has suffered more heavy losses in Wednesday business as shelling in Ukraine has intensified. It’s down 6.2% today at £16.62 and trading around its cheapest for almost two years. On a 12-month basis the stock’s fallen 28% so now it’s trading on a forward price-to-earnings (P/E) ratio of 11.9 times.
Historically CCH’s share price has commanded a much-meatier forward P/E ratio of around 20 times. The risks to the FTSE 100 firm are increasing, sure. And as a human being my concerns over CCH take a back seat to my horror at the worsening conflict. But as a long-term investor, should I consider increasing my holdings given that slumping earnings ratio?
Why exactly has CCH’s share price tanked?
Coca-Cola HBC is considered to have significant growth opportunities because of its broad exposure to emerging markets. The problem right now is that the conflict in Eastern Europe could decimate the recovery in two of its biggest emerging markets.
Collectively Russia and Ukraine account for 16% of all volumes. What’s more, the post-pandemic rebound has been particularly strong in these two nations. Russian volumes rose 18% in 2021 while those in Ukraine jumped 17%. By comparison volume growth across the group averaged 13% last year.
It’s no shock then that investors have headed for the exits in recent days. The impact of economic sanctions on consumer spending in Russia — a country accounting for more than a quarter of all emerging market volumes — threatens to significantly harm CCH’s earnings. The business has also shuttered its Ukrainian bottling plant in recent days.
Here’s what I’m doing today
Last week Coca-Cola HBC chief executive Zoran Bogdanovic tried to soothe investor fears over its Eastern European operations. He told Reuters that “we have contingencies in place for all scenarios” and that the firm has built stockpiles to help it avoid disruption.
Only time will tell if the company has done enough in response to the crisis. But right now things are looking dicey for Coca-Cola HBC and its share price in the short-to-medium term. The question is whether I, as someone who invests for the long haul, should think about buying CCH following its recent share price dip.
I still believe that Coca-Cola HBC has the tools to grow strongly in the future. The brand power of its beverages is unrivalled, while its entry into fast-growing segments like low-calorie and energy drinks is progressing nicely. But right now I’ll hold off buying the FTSE 100 stock until the tragedy in Eastern Europe eases and its future in Russia and Ukraine becomes clearer.