CCL’s pricing power might be breaking down. Historically, contractions in CCL’s market share in response to significant price premium increases have been short lived. But in the context of increasingly frugal consumers, combined with a rotation away from sugary drinks and sustained discounting by main competitor Pepsi Schweppes, the ability to recoup market-share losses will be a challenge and are likely to affect long-term volume and capacity for price growth. Management noted increased competitor price discounting recently and guided a 3-5 per cent decline in EBIT (earnings before interest and tax) for 2014.
We have cut our forecast for normalised return on equity (NROE) to 32 per cent. This lowers our valuation by 18 per cent to $9.14.