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Macquarie: Coca-Cola European Partners Faces Downside Risk From UK Plastic Regulations

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The UK recently proposed that producers of plastic items should pay 100 percent of disposal costs versus the 10 percent being paid now.

This represents downside risk to earnings at Coca-Cola European Partners PLC (NYSE: CCEP), although the impact can be estimated only after there are more details on the cost of initiatives, according to Macquarie.

The Analyst

Macquarie’s Caroline Levy maintains an Outperform rating on Coca-Cola European Partners with an unchanged $52 price target.

The Thesis

The increased focus on plastic usage by governments as well as consumers is a risk for plastic producers, Levy said in a Wednesday note. This is even more of a risk for producers of single-use plastics like Coca-Cola European Partners, she said.

Government actions have been intensifying after the European Union pledged to eliminate the use of throwaway plastics in food and drink containers by 2021.

The impact on companies is two-pronged, as such initiatives drive up the cost of packaging, with companies spending more on developing recyclable alternatives; and they increase company responsibility for plastic disposal, the analyst said.

Although Coca-Cola Co (NYSE: KO) may share the cost, this move will mean a “disproportionate hit to CCEP margins,” Levy said.

Price Action

Coca-Cola European Partners shares were trading down 1.59 percent at $45.09 at the time of publication Wednesday.

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