Possible seizure of Russia assets sends stock sharply lower. Further -16% downside possible if confirmed. TP cut to £40
CITI’S TAKE
We maintain our Neutral rating on CCH but cut our target price to £40.0 following press reports that its Russia subsidiary, Multon Partners, may be seized by Russian authorities—news that sent shares down c.18%. Russia is critical to CCH, accounting for an estimated 33% of FY26E group EPS via growing EBIT (c.21% of group) and interest income on €1.05bn of trapped cash. CCH has issued a press release indicating it hasn’t received any notification from the Russian government of any changes to its operations. We see the outcome of this situation as binary: If the assets are formally appropriated, removing Russia implies a fair value for CCH of £34.10, -16% below the current stock price. Moreover, even if the assets are not seized, we expect a permanently impaired multiple on the remaining Russian earnings to limit recovery to c.£43.75 (+8% upside).
CCH’s Russia business at risk of seizure — Russian newspaper Kommersant (5 Nov) reports Bochkari has asked President Putin to transfer control of CCH’s Russian business. The news follows an announcement earlier today that Russia was seizing control of Japan Tobacco’s local business.
CCH’s Multon Partners subsidiary operates as a standalone entity — Following The Coca-Cola Company’s withdrawal from Russia in 2022, CCH has continued local operations independently through its Multon Partners subsidiary.
Russia accounts for 33% of CCH EPS —EBIT growth from €150m in FY21 to an estimated €315m in FY26E, coupled with €1,046m of trapped local cash earning substantial interest, means we estimate Russia is 33% of CCH’s FY26E group EPS.
Asset expropriation presents further downside risk.. — If the Russian authorities formally seize CCH’s local assets, we estimate CCH’s Ex: Russia FY27E EPS at €2.04. Applying a 20x P/E multiple to this remaining earnings stream suggests a fair value of £34.10; implying further -16% downside from the current stock price.
…while valuation upside is constrained — Even if the assets are retained, ongoing geopolitical risk will require a structural discount on the Russian cash flow. Applying a 10x P/E multiple to any remaining Russian earnings and a 20x multiple to non-Russian earnings yields a blended fair value of £43.75, offering only an 8% upside.
Is CCH about to lose its Russia business?
What has happened?
Press reports suggest CCH’s Russia assets might be seized — Russian newspaper Kommersant is reporting that Bochkari, a small Altai-based brewing and soft drinks company made a request to President Putin in mid-October to place the Russian operations of CCH under its control. This news follows the announcement earlier today that following a Presidential decree, Russia had seized control of Japan Tobacco’s local business and transferred it to JSC Industrial. Although a firm decision has not been made by the Russia government on the future of the CCH assets, Kommersant indicates that Bochkari’s request has received partial support from deputy prime ministers.
CCH press release has not received any notification about change of control from the Russia Government — After the market close on November 5th, CCH issued a press release confirming that it had received “no notification from the Russian government of any changes to its operations.”
How big is CCH’s Russian business?
What is CCH’s Russia business? — CCH’s Multon subsidiary in Russia bottled Coca-Cola Company’s products in the market until 2022. However, following the war in Ukraine, Coca-Cola withdrew its brands. Since then, CCH has continued to operate as a standalone business – Multon Partners – transitioning to produce its own Cola brand Dobry Cola, as well as other fruit and iced tea drinks.
We estimate Russia accounts for 33% of CCH group EPS — Since taking 100% control and ownership of the Russia business, we estimate CCH has doubled EBIT margins and increased its EBIT from €150m in 2021 to an estimated €315m by end FY26E, (See Figure 1). This means Russia currently accounts for c.21% of group EBIT (pre-CCBA). However, international restriction on Russian businesses mean CCH has been unable to extract cash from its subsidiary in the intervening period, leaving it to accumulate locally. As such, at H1 26, there was €1,046m of ‘trapped cash’ sitting in Russia. The attractive rate of local interest earned on this cash has been a consistent driver of upgrades to CCH group finance cost lines, supporting EPS upgrades. The combination of these factors means we estimate the Russia business accounts for 33% of FY26E group EPS.
Assessing the stock price risk/reward
CCH stock has fallen significantly BUT a further c. -16% downside is possible — CCH stock has fallen heavily on these reports. However, if the CCH’s Russia assets are formally seized, we think there is further downside risk. Russia currently accounts for €1.16 of our group FY27E EPS of €3.20. As a result, removing Russia from our go-forward earnings would leave the EPS of the ex: Russia business at €2.04. Placing this earnings stream on a c.20x PE multiple, similar to the trading multiple of CCEP, implies an ex: Russia fair value of CCH of £34.10. This is still c.-16% below the current stock price.
Even if the assets aren’t seized, CCH’s share price is unlikely to fully recover. We see 8% upside — Even if the Russia authorities do not end up taking control of CCH’s business, we doubt the CCH stock price will recover back to prior trading levels. We expect a discount multiple will have to be applied to any remaining Russia earnings stream from here on. Assuming a 10x PE multiple for any remaining Russia earnings and placing the non-Russian business on 20x, suggests a combined fair value of £43.75, only c.+8% higher than the stocks £40.5 closing price
Other stocks at risk – PMI could see further LSD downside — Most of our Beverage and Tobacco stocks have already exited any Russia operations. However, PMI continues to operate in the market, generating an estimated 7% of EPS from the regions. As such, although PMI shares are down c.-4% at the time of writing, we see further LSD downside risk.
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