Susquehanna’s Pablo Zuanic and team argue that Coca-Cola Enterprises (CCE), Mondelez International (MDLZ) and SodaStream International (SODA) are most at risk if Britain votes to leave the European Union. They explain why:
The impact from “Brexit” on our coverage would at first be mainly FX driven (various reports point to as much as a 20% drop in the pound, and a 5-10% drop in the euro), while later on we would see the consequences of any potential economic slowdown on the underlying businesses. In our coverage Coca-Cola Enterprises (proforma CCEP) has 100% exposure to both currencies (22% to the £), SodaStream has 62% exposure (11% to the £), and Mondelez 39% (6% to the £). The rest of the companies in our coverage have exposure below 20% to the euro and pound on a combined basis (Kellogg (K) 19%, the proforma Molson Coors Brewing (TAP) 17%, Mead Johnson Nutrition (MJN) 15%, PepsiCo (PEP) 15%, Kraft Heinz (KHC) 15%, WhiteWave Foods (WWAV) 14%, and the rest 12% or lower). So if we take the scenario of a 20% drop in the pound and a 5% drop in the Euro, then the negative sales impact on Cocal-Cola Enterprises would be more than 8% (likely greater on earnings, given $ denominated fixed costs), about 5% at SodaStream, and c3% for Mondelez. We rate all three stocks Neutral, but on valuation, recent stock performance, and context, we think Coca-Cola Enterprises shares are the most exposed.
Shares of Coca-Cola Enterprises have jumped 3.2% to $38.65 at 10:27 a.m. today, while Mondelez International has gained 1.8% to $44.81, SodaStream International has risen 1.7% to $22.08, Kraft Heinz has advanced 1.6% to $86.14, and PepsiCo is up 0.6% at $104.04.