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Company: Coca-Cola Amatil Limited
ASX Code: CCL
Current Share Price: $8.37
1 Year High/Low: $9.79/$6.65

Coca-Cola Amatil Limited (CCL)

Operations

Coca-Cola Amatil (CCL) is the Asian region bottler for the Coca Cola Company. CCL manufactures, sells and distributes Coca-Cola products throughout the Asia-Pacific region. The company’s portfolio of products includes carbonated soft drinks, mineral waters, other non-alcoholic beverages and packaged fruit.

Investment opinion

CCL has performed well in the past two years with an average EPS growth rate of 14.61% p.a. and a three year investor return of 9.36% p.a. The company has retained its status as a Stock Doctor Star Stock following analysis of its results for the full year 2008. Despite a very challenging economic and trading environment, the company managed to achieve solid results due to the continued strong performances by the Australian and New Zealand beverage businesses and an excellent result from the operations in Indonesia and Papua New Guinea.

In addition, CCL had a number of outstanding new product launches like Glacéau vitamin water and the 500ml Mother energy drink. The addition of these new products has strengthened CCL’s market leadership in non-alcoholic beverages, and improved the company’s market share in non-carbonated beverages.

Consequently, CCL has a very defensive earnings stream and may be worthy of consideration as an investment option.

Financials

CCL’s net operating profit before tax and significant items fell by 2.26% to $562 million for the period 1 January to 31 December 2008 from $575 million in the previous corresponding period. However, due to capital raising initiatives, EPS increased from 48.57 cents to 54.84 cents which translates to EPS growth of 12.91%. The solid result can be attributed to the strong trading performances from operations in Australia, New Zealand and Indonesia. ROA came in at 11.89%.

Valuation

The company last closed at $8.37, which is a discount to our valuation of $8.69. This indicates potential for share price appreciation at current levels should the company achieve earnings forecasts.

Outlook

The outlook for the company is positive with management announcing that business priorities for 2009 include the continued expansion of CCL’s non-alcoholic beverage portfolio through organic growth, the successful delivery of ‘Project Zero’ and further innovative packaging. The company also intends to further expand its range of alcoholic beverages within Australia and New Zealand and invest approximately $100 million in drink coolers and vending machine equipment to further drive single-serve immediate consumption product availability. Furthermore, the company has a strong new product pipeline in non-alcoholic beverages for 2009 across a range of categories, including the roll-out of Goulburn Valley fresh flavoured milk in New South Wales, Victoria and Queensland during the third quarter of 2009. Consensus analyst forecasts expect the company to achieve full year EPS of 58.70 cents per share for 2009, an increase of 7.04% on 2008.

Why is a company’s market capitalisation important?

A company’s market capitalisation is the total dollar value of all issued shares. Traditionally, companies with larger market capitalisations tend to experience less volatility in share price than stocks with smaller market capitalisations.

It is important to consider what size companies suit your portfolio given your risk profile.

In our example above, CCL is considered a large cap company with a market capitalisation of $6,210 million.

Financially healthy, undervalued companies with strong earnings outlooks tend to be more resilient in volatile market conditions and are often the first to bounce back once investor sentiment is restored.

 

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Important information:

Author: Tim Lincoln. Lincoln Indicators Pty Ltd ACN 006 715 573 (Lincoln) AFSL 237740.

This information is current as at 22 April 2009.

Our advice and the advice of our Authorised Representatives (including advice in this communication) are prepared without taking into account your personal circumstances.

You should therefore consider the appropriateness of the advice in light of your objections, financial situation and needs, before acting on it. Where our advice relates to the acquisition or possible acquisition of a financial product, you should obtain a copy of and consider the Financial Services Guide (FSG) before making any decision. Investments can go up and down. Past performance is not a reliable indicator of future performance.

Our analysis and advice is impacted by AIFRS. Please refer to our website for further information: www.lincolnindicators.com.au/AIFRS. Testimonials are provided by third parties for information purposes only and are not intended to be financial product advice. They do not represent opinion or advice from Lincoln. The information provided may not be appropriate to your particular circumstances. You should consider obtaining your own independent advice before making any decision.

Lincoln, its director, employees and agents, makes no representation and gives no warranty as to the accuracy of this communication and does not accept any responsibility for any errors or inaccuracies in or omissions from this communication (whether negligent or otherwise) and shall not be liable for any loss or damage howsoever arising as a result of any person acting or refraining from acting in reliance on any information contained herein. No reader should rely on this communication as it does not purport to be comprehensive or to render advice. This disclaimer does not purport to exclude any warranties implied by law which may not be lawfully excluded. Lincoln, its employees and/or its associates hold interests in: CCL. This position could change at any time without notice.

Economic and other information taken into account in forming any opinions are subject to change and therefore opinions expressed as to future matters may no longer be reliable.