Morgan Stanley starts coverage on Coca-Cola HBC & Royal Unibrew with "OW" ratings

Investing.com -- Morgan Stanley has initiated coverage on Coca-Cola HBC AG (LON:CCH) and Royal Unibrew (CSE:RBREW) with “overweight” ratings, citing growth potential in soft drinks and structural shifts in beverages. 

“Soft drinks should continue to offer outsized volume growth within Beverages, in particular in emerging countries,” the analysts said.

For Coca-Cola HBC AG, Morgan Stanley set a price target of 4,400p, implying a 28% upside and naming it a new top pick. 

The brokerage described the company as offering “a compelling blend of growth and defensive characteristics,” underpinned by margin recovery and the potential for upward earnings revisions. 

Morgan Stanley projects 6% organic sales growth annually from 2025‑28, two percentage points ahead of the beverages sector. 

About 65% of revenue comes from emerging markets, and approximately 83% of revenue is generated through its partnership with Coca-Cola Co., providing “global innovation with local expertise,” the brokerage said.

Morgan Stanley expects Coca-Cola HBC’s leverage to be 0.7x in 2026, or 1.3x excluding Russia, below the company’s target range of 1.5x‑2x, creating “meaningful runway to invest” through acquisitions or buybacks. 

The brokerage forecasts €1.5 billion in balance sheet capacity and about €300 million in excess free cash flow annually, roughly 3% of market capitalization.

Morgan Stanley’s forecasts exceed consensus, with 6.1% organic sales growth, a 40‑basis‑point annual increase in organic EBIT margin, and an 8.4% adjusted EBIT CAGR over 2025‑28. Including €150 million in annual buybacks from 2026, Morgan Stanley projects a 9.3% adjusted EPS CAGR, compared with consensus of 8.2%. 

Coca-Cola HBC trades at 13.8x 2026 earnings, a 15% discount to EU staples, with the target implying a re‑rating to 17.4x, a 9% premium. 

Risks include foreign exchange volatility, inability to repatriate cash in certain markets, potential forced sale of the Russian business, and regulatory or consumer changes.

For Royal Unibrew, Morgan Stanley set a price target of DKK570, implying 18% upside. 

The brokerage described Royal Unibrew as “an earnings normalisation and re-rating story.” 

Non‑alcoholic beverages now account for 54% of revenue, up from 50% in 2019, with low/no‑sugar products representing 24% of revenue, an increase of eight percentage points. 

Alcoholic beverages make up 46%, with beer exposure reduced by eight percentage points since 2019.

Morgan Stanley forecast 3.8% organic sales growth annually over 2025‑28, a 57‑basis‑point margin improvement, and an 8% EBIT CAGR, supported by easing cost inflation and integration of recent acquisitions such as Vrumona. 

Adjusted EPS is expected to grow at an 11% CAGR, aided by DKK400 million in annual buybacks, slightly above consensus. 

At 14.1x 2026 earnings, Royal Unibrew trades at a 12% discount to EU staples, with the target implying a re‑rating to 16.6x. 

Risks include higher‑than‑expected investment for acquisitions, loss of key licenses, further cost inflation, and shifts in consumer preferences.