Coca-Cola Amatil Limited

Strategic Initiatives Drive Revenue Growth: Coca-Cola Amatil Limited (ASX: CCL) is a leading bottler and distributors of non-alcoholic and alcoholic ready-to-drink beverages in the Asia Pacific region. The company recently notified the exchange that it has declared a dividend amounting to AUD 0.2500 per ordinary share. The dividend will be paid to the shareholder on 09 October 2019. As per another update, BlackRock Group became a substantial shareholder of the company with the voting power of 5.0%.

Sale of Business: The company recently completed the sale of its SPC fruit and vegetable processing business for a consideration of $40 million, payable on completion of the transaction. The receiving parties to the agreement are Shepparton Partners Collective Pty Ltd and its Group of companies. The sale agreement may also lead to additional sale proceeds amounting to $15 million on the back of a 4-year earnout structure. In addition, the company is expected to record a profit on sale of approximately $14 million, after all adjustments.
 
1H19 Financial Highlights: During the first half, the company reported a decent growth in revenue as a result of strategic initiative across the group. Revenue for the period increased by 5.2% in comparison to prior corresponding period. Statutory earnings before interest and tax were reported at $273.5 million, up 4.7% on prior corresponding period. Statutory net profit after tax for the period, amounted to $168.0 million, up 6.3% in comparison to prior corresponding period. The company reported an increase of 6.4% in statutory earnings per share, while ongoing EPS witnessed a decline of 4.0%.

Segment-wise Performance: Starting from Australian Beverages, the segment made the highest contribution to Group underlying EBIT during the period. Underlying EBIT for Australian Beverages was reported at $161.6 million, as compared to $176.3 million in pcp, down 8.3%.Underlying EBIT for New Zealand & Fiji stood at $57.3 million, up 15.1% on prior corresponding period value of $49.8 million. Indonesia & Papua New Guinea reported an underlying EBIT of $52.2 million, up 3.2% on prior corresponding period. Alcohol & Coffee segment reported underlying EBIT amounting to $24.8 million, rising 10.2% in comparison to prior corresponding period value of $22.5 million.



Segment Performance (Source: Company Reports)

Outlook: With additional investments in the Accelerated Australian Growth Plan, the Australian Beverages segment seems well-positioned for growth in 2020. In Indonesia, the company continues to deliver on its Accelerate to Transform strategy. The company has also planned additional marketing expenditure in relation to the segment in 2019 due to soft macroeconomic conditions, subdued market growth and a weak Indonesian Rupiah. Growth from New Zealand & Fiji, Alcohol & Coffee and Papua New Guinea is expected to be in-line with the company’s Shareholder Value Proposition. In addition, the company expects to report an EBIT loss of around $12 million for Corporate & Services segment. As a part of the ongoing cost optimisation processes, the company expects one-off costs amounting to $30 million, which will be partially offset by one-off gains from the disposal of surplus properties in 2019.

Stock Recommendation: The stock of the company generated returns of 26.24% over 6 months. Currently, the stock is trading at its 52-week high level of $11.050. The company’s performance for the first half ended 28 June 2019 was characterised by decent growth in revenue accompanied by strong cash flow. The company is committed to its Shareholder Value Proposition and is targeting to deliver mid-single-digit earnings per share growth from 2020. Considering the above factors, we give a “Hold” recommendation on the stock at the current market price of $11.050, up 5.843% on 22 August 2019 as the company posted a decent set of numbers for 1H19.  

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