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.
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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.
