Coca-Cola Amatil Limited (ASX:CCL)

December 07, 2017 | Price: $8.21

Dividend Portfolio

Overview: Coca-Cola Amatil Limited (“Coca-Cola Amatil”, “the Company”) is an Australian diversified consumer company focused on beverages. The Company manufactures and distributes carbonated soft drinks, water, sports and energy drinks, fruit juice, flavoured milk, coffee, and packaged ready-to-eat fruit and vegetable products. Coca-Cola Amatil is the principle licensee of the Coca-Cola brand in Australia and also operates in New Zealand, Fiji, Indonesia, Papua New Guinea, and Samoa.

Catalysts: After a period of sustained underperformance Coca-Cola Amatil’s share price is trading ~50% below its peak and the valuation appears undemanding in light of the Company’s balance sheet strength, recent operational improvements, and somewhat defensive business model. A mix of capital management initiatives and a rebalancing of the Company’s product portfolio has the potential to drive earnings growth.

Hurdles: Revenues and earnings have been volatile over the past five years and there is a risk that the Company’s financial performance may continue to decline. Coca-Cola Amatil has invested heavily in capacity and operations and there is no guarantee that this will yield a return on shareholder funds. Operating in a number of foreign jurisdictions across Asia-Pacific, the Company may be subject to regulatory hurdles.

Investment View: Coca-Cola Amatil offers profitable exposure to demand for beverages in Australasia. We are attracted to the Company’s balance sheet, defensive business model, and potential to return to earnings growth. Risks include ongoing erosion of sales and earnings, unfavourable consumer trends, and regulatory hurdles. After a period of sustained share price weakness, we believe that recent hurdles have been largely factored into the share price and we see reasonable value growth potential given the risks. Coca-Cola Amatil’s valuation appears undemanding as we initiate coverage with a ‘buy’ recommendation.

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