3 Beverage stocks with High ROE - TWE, CCL and GRB

Stocks’ Details
 

Treasury Wine Estates Limited (ASX: TWE)

Portfolio Expansion: IMF announced that the Federal Court has made orders for approving the settlement of the class action against Treasury Wine Estates Limited and no objection was made against these orders. IMF expects to recognise revenue of approximately $22 million from this investment and profit after capitalising the overheads to be around $11 million. This is the second case of completion in IMF’s global portfolio for FY18. The strategy TWE embarked three years ago has been working well and its momentum of growth made it to be the world’s most global wine company. It continues to optimise its operating model across all the regions. It has always been focused on building its portfolio including its Australian and American Portfolio. It remains committed to driving its demand and enhancing availability of its wine brands through best of marketing efforts and by its strong customer partnerships across the world. There was a devastation caused by a natural disaster recently, but the group’s staff and infrastructure remained intact without any significant damage. In FY17, all its regions contributed to robust earnings growth with group EBITS growth of 36% and Earning Per Share growth of 50%. Its annual dividend was 26 cents per share which was 30% up on prior year. In FY18, it will target to grow its share through masstige-led portfolio innovation and also by expanding its sales channel whilst tightly managing its cost base. It targets to set a new margin of EBIT of 25% over time. Looking at the share price, the stock has moved up 34% in last six months and is touching its 52-week high level. Any dip can be evaluated for an entry position while the stock looks “Expensive” at the current price of $17.22
 

Growth Strategy (Source: Company Reports)
 

Coca-Cola Amatil Limited (ASX: CCL)

Accelerated Growth Plan on track: CCL has lately appointed Peter West as its new Managing Director for Australian Beverages. The Accelerated Australian Growth Plan was a major investment in the business which aimed at bringing Australian Beverages back to growth, so they expect that Mr Peter will deliver the results by investing significantly in marketing, execution, cold drinks, equipment and in digital technology. In 2017, CCL performed well, though they faced few challenges at the start of the year for Australian Beverages. The group has established a “Partner and Growth” function to drive its growth and created a “Group Digital Technology” function to leverage digitisation and technology strategies across the businesses. It also announced a share buy-back program of $350 million which was completed in November 2017, and the group acquired 39.6 million shares at an average price of $8.84 which resulted in issue of 723,989,498 shares.

 A significant new product was launched in 2017 that was with no sugar, and more activities were set in pipeline that include launch of additional rational flavours which will attract lapsed and new customers. On the other hand, Coca-Cola with No Sugar has already achieved penetration of about 74% in state outlets. It has successfully identified and delivered on many cost optimisation initiatives and is already accelerating the closure of Thebarton at the end of 2018. It has also decided to bring forward $40 million of reinvestment from the expected cost savings in 2019 and 2020 that will be allocated towards initiatives which are a part of its Accelerated Australian Growth Plan. It continues to target a medium term pay out ratio of over 80%. CCL is also committed to create a value on its shares by targeting mid-single digit earnings per share growth in medium term, subject to the success of revenue growth initiatives in Australia, Indonesia economic factors and regulatory conditions in each of its markets. We recommend to “Buy” the stock at the current price of $8.27
 

Acceleration Revenue Growth Plan (Source: Company Reports)
 

Gage Roads Brewing Co. Limited (ASX: GRB)

Consistent Performance: It is one of the Australia’s most established and awarded brewers of craft beer. Total Sales of Gage Roads’ proprietary craft beer products for FY 17 were up by 23% and reached to 3.4 million and whereas it was 2.8 million in FY 16. Its revenue for FY 17 was up by 7% and accounted to $27.2 million, while it was $25.5 million in FY 16. NPAT was up by 229% at $2.0 million, whereas it was $0.6 million for FY 16. The group invested approximately $2.9 million in its total sales and marketing in FY 17. It was selected as one of the main beer brands at Optus Stadium. It is expected that the impact of Optus Stadium will improve the brand awareness from January 2018 onwards. The group continues to build a strong relationship with national chains and has secured volume expectations. It continued to deliver outstanding results for its first quarter of FY 18.  Gage Roads draught sales were up by 81% as compared to the first quarter of FY 17. It applied surplus cash of $2 million to pay its remaining debts. New brands are to be launched into its retail sector and also operations will be commencing in Q3 of FY18. We recommend to “Hold” the stock at the current price of $0.09, as there is a room for upside momentum.
 

Growth Performance Outlook (Source: Company Reports)

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