Coca Cola Amatil (CCL)
% change +1.1%
RBS – BUY, $13.43 Price Target
Credit Suisse – Outperform, $12.00 Price Target
Lincoln Indicators – BUY
Wilson HTM – BUY
Morningstar – HOLD, fair value $12.65
Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO)
Although a 1.1% gain for the week and a 3.6% gain over six months would not normally be something to cheer about, Coca Cola Amatil (CCL) is one of only a handful of stocks on the ASX that boasts a higher share price than it had six months ago.
For months analysts have been recommending CCL to TheBull readers. In Anthony Black’s pre-slump article on June 13th 2011 “A Choice Set Of Stocks Able To Withstand Volatility And Grow Over The Long Term”, it was pointed out that CCL not only had several growth opportunities, but was also largely cushioned from challenging economic conditions. And there’s no denying that conditions are now “challenging”, with the European debt crisis, looming US recession and slowdown in China all contributing to the current market chaos.
As the market continued to slide, several other brokers also pointed out CCL’s strengths. Just four weeks ago both Lincoln and Wilson HTM listed CCL as a buy, and RBS Morgans now believes that the bottler has plenty of strong growth in the pipeline. RBS has a $13.43 price target on CCL, a 13% premium to Friday’s closing price.
Coca-Cola Amatil, based in Sydney and with a market cap of more than $8 billion is one of Australia’s top 50 listed companies. It is also one of the world’s top five Coca-Cola bottlers, employing more than 15,000 people in five countries – Australia, New Zealand, Fiji, Indonesia and Papua New Guinea. The business involves manufacturing, selling and distributing carbonated soft drinks, water, sports and energy drinks, fruit juice, flavoured milk, coffee and also packaged ready-to-at fruit and vegetable products.
CCL also has a 50/50 joint venture with SABMiller called Pacific Beverages, one of the world’s largest brewers with a range of premium beers in Australia and New Zealand. It also sells and distributes the premium spirits portfolio of Beam Global Spirits & Wines. It’s hardly surprising that the Coca-Cola Company (Coke) is the major shareholder of CCL, with 30% of CCL’s shares and two directors CCL’s Board of Directors.
The bottler manufactures and distributes Coke’s products such as Coca-Cola, Mount Franklin water and Gatorade under licence from Coca-Cola, as well as SABMiller’s premium beers such as Peroni and Grolsch, and Beam Global Spirits & Wines’ brands like Jim Beam and Canadian Club. It is safe to say that there would be few Australians who hadn’t consumed something that came out of a CCL factory.
CCL has a strong track record, significant brand presence, the potential to grow and healthy margins, what’s more it pays solid and growing fully franked dividends.
Company Investor Centre: Coca-Cola Amatil
Company Earnings Report: Coca-Cola Amatil Full Year Earnings Report – June 30th 2010
Andrew Doherty from Morningstar says that sharemarket volatility goes hand-in-hand with investing. “Current global concerns will pass, but others will follow, and a return to bull market conditions will occur,” he says. “Portfolios with a focus on quality companies with robust earnings streams and balance sheets are better placed to withstand the market downturns and support returns over the long term.”
Defensive company and soft drink bottler Coca-Cola Amatil is one such company that is largely cushioned from challenging economic conditions. But Doherty says that revenues will also grow as new products, including ready to drinks (RTDs) and premium beer, are added to the chain relatively cheaply. He says healthy margins enable cash flows to comfortably exceed substantial capital requirements, and brand power supports price increases over time. He also points out that Indonesia adds an additional growth stream. What’s more, solid and growing fully franked dividends are set to continue. Doherty says Coca-Cola Amatil offers scale advantages flowing from its extensive distribution network and has a hold on the bottler, with a fair value price of $12.65.
James Samson of Lincoln Indicators is more bullish, and has a buy on CCL following another solid result for the 2011 financial year. “CCL is a stable company with an established dominant position in the carbonated drinks market,” he says. “Investors may seek an investment in CCL to provide exposure to the consumer staples sector.”
Natural disasters in Australia and New Zealand did have an impact on sales volumes, says Peter Day from Wilson HTM, but he believes that this is a short-term issue. “Efficiency gains driven by capital expenditure will underpin improving profit growth in the medium term,” he says. “We believe the higher price/earnings ratio is warranted due to growth prospects and a pipeline of value accretive projects.”
Simon Bond, RBS Morgans also has a buy on CCL, saying that the beverage giant offers a strong medium-term growth profile driven by high return generating capital projects during the next four years. “Strong brands and a wide footprint positions the business relatively well in a difficult pricing environment,” he says. “Indonesia is a positive earnings driver as relative immaturity and rising incomes continue to drive strong growth.”
Management appears to be getting things right, which is encouraging for investors. The move into Indonesia has proven to be lucrative and SABMiller’s takeover of Foster’s has led to a bonus in that SABMiller will have to buy out its 50% stake for more than $300 million, $200 million above book value. In the deal CCL has a windfall in terms of future growth opportunities – it also gains the right to buy Foster’s spirits, ready-to-drink and non-alcoholic beverage businesses in Australia, plus some businesses overseas.
Stock code: CCL
Charts: Coca Cola Amatil Limited
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