Create Free Account

By creating account you will get access to hot stocks & personalised emails

Mid-Cap

Is the topping up of shares of Coca-Cola Amatil really worth a shot?

September 22, 2015 | Team Kalkine
Is the topping up of shares of Coca-Cola Amatil really worth a shot?

Financial results for the half year ended 3 July 2015



Trading revenue is up by 4.9% to $ 2.44 billion and total revenue by 4.8% to $ 2.49 billion. EBITDA was up 1.3% to $ 453.9 million and profit after income tax 2.6% to $ 187.3 million. The net profit attributable to members was up by 0.9% to $ 183.9 million. EPS was up 0.9% to 24.1 cents per share, free cash flow was down 43.2% to $ 71.5 million, return on capital employed was down 2.3 points to 18.2% and EBIT interest cover was up at 6.2 times. The interim dividend for 2015 franked at 75% was 20 cents per share and signifies a payout of 83% of the first half net profit.
 
The earnings for the first half are consistent with the expectations of the company and the guidance previously provided. The cost savings for 2015 are on track and weighted to the second half and concrete progress has been made in the implementation of strategies to strengthen the market leadership position across all markets. The Australian beverages business delivered increases in both volumes and trading revenues because of investments in pricing, innovation, brand building and improvements in the route to market. These investments will be funded by cost savings which will be delivered in the second half of the year. CSD volumes stabilised delivering gains in both volume and value share despite the continuing decline in the overall market. The business remains on track to deliver the three-year cost savings target in excess of $ 100 million with savings in 2015 weighted towards the second half.
 
Earnings in New Zealand and Fiji increased by 9.9% because of strong performance in CSD' s and water, and both businesses benefited from buoyant economic conditions, especially in the first quarter in New Zealand, and strong market activation resulted in market share gains in energy and sports drinks. Indonesia and PNG produced improved earnings with the Indonesian business delivering volume growth and strong market share gains. The market presence in Indonesia has expanded improved product availability and affordability but economic growth has slowed and this is affecting the overall purchasing power of consumers.
 

Australian Beverages (Source: Company Reports)


Earnings from alcohol and coffee surged by 30.4% because of improved market share across the Beam portfolio and the new product launches. The relationship with Beam Suntory was strengthened in both Australia and New Zealand with new 10 year agreement which would fully integrate the expanded range of spirits into the CCA portfolio. Beer and cider ranges were expanded across the off premise channel and craft beer Yenda was successfully launched. On-track growth of the coffee business is reported with the successful expansion of the range of Grinders capsules.
 

Stabilization, Expansion and Portfolio Build-up Strategy

In October 2014, the company announced the results of a strategic business review which was conducted because of deteriorating market conditions and to restore the company to sustainable earnings growth. The company continues to target mid-single digit growth in EPS over the next few years with no further decline after 2014.


Net Debt and Interest Cover (Source: Company Reports)
 
The Australian beverages business is stabilising earnings and returning to growth and strengthening its leadership position by rebuilding brand equity in Coca-Cola and innovation aimed at "better for you" products. Together with partner, The Coca-Cola Company, marketing investment has been substantially increased and more targeted recruitment initiatives are being developed. After the successful launch of the 250 ml can, the company aims to introduce even smaller portion packs in order to provide more affordable products. Innovation will continue in the second half particularly in the water and sports categories and accelerate Barista Bros and Zico Coconut water brands. Revenue management initiatives will include greater emphasis on growing high margin packs such as glass and single serve. The business continues to make decisions for the long term with the expectation that the turnaround is going to be gradual and steady. Despite stronger than expected headwinds in the first half, the business continues to focus on stabilising earnings.
 
Indonesia is an exciting growth market over the long term and with continuing growth in demand from the emerging middle class for beverages, there is the opportunity to increase appeal to customers to continue maintaining a leadership position. The company is confident of delivering above market volume growth and improved earnings both for Indonesia and PNG. The company will continue to build its alcoholic beverages portfolio by strengthening product offerings and customer service and leveraging its large-scale manufacturing and distribution infrastructure. It has a number of strong alcoholic beverage brand owner partners as well as the opportunity to develop its own brands.
 
In terms of the financial outlook, the company is targeting mid-single digit growth in EPS over the next few years and is confident that the combination of revenue and cost initiatives will help to achieve this growth. The balance sheet remains strong as is free cash flow generation and there should be no problem in maintaining a dividend payout ratio in excess of 80% over the next three years. Capital investment is expected to be around $ 300 million in 2015 which is in line with depreciation.
 
As a competitive strategy, the company in late 2013 has also cut prices of its Kiwi Blue and Pump water brands anticipating the changing market trends.
 
Shares of the company have rallied just over 2% and this could be linked to reports that SABMiller, the world’s second-largest brewer, has been approached by its larger rival Anheuser-Busch InBev (AB InBev) regarding a potential takeover. As a response and to block a takeover, it is speculated  that SABMiller may be interested in acquiring Coca-Cola Amatil given the steep fall in the Australian-based beverage manufacturer’s shares over the last couple of years. This may give a blow to AB InBev given AB InBev’s relationship with Pepsi at the brink of some regulatory issues. Whether or not the speculation regarding SABMiller’s interest in the company is true, the latest takeover assault from AB InBev could certainly add some urgency to the speculation. However, there is no certainty that a deal between SABMiller and AB InBev will go through and any deal will attract the attention of regulators because of the size of the combined company.
 

CCL Daily Chart (Source: Thomson Reuters)

We would not expect investors to view the stock based on the strength of any take-over speculation or rumours but we believe that the worst is over for the company and one can look forward to an upside in stock prices given the efforts being made by Coca-Cola Amatil. Accordingly, we would place a Buy rating on the stock at the current price of $8.84.

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
Copyright
Copyright © 2015 Kalkine Pty Ltd ABN 34 154 808 312. No part of this website, or its content, may be reproduced in any form without the prior consent of Kalkine Pty Ltd.
Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.




Mid-Cap
Technical Analysis on One ASX-Listed Stock – CIA
November 25, 2024Team Kalkine
Blue-Chip
Key Business Insights on this Consumer Staples Company– TGT
November 25, 2024Team Kalkine
Blue-Chip
An Update on One NASDAQ- Listed Online Services Stock – Alphabet Inc
November 22, 2024Team Kalkine
Blue-Chip
One NASDAQ- Listed Renewable Energy Stock at Decent Support Levels– First Solar Inc
November 22, 2024Team Kalkine
Small-Cap
One NASDAQ- Listed Movies & Entertainment ADR Under Radar- iQIYI, Inc
November 22, 2024Team Kalkine

Get In Touch

By submitting your details and clicking on the Register button below, you agree to Kalkine’s Terms and Conditions and agree to receive marketing offers, including to be contacted by email or phone, as set out in our Privacy Policy. Any calls will be made by Kalkine Pty Ltd or Kalkine Solutions Private Limited on our behalf.You also agree that Kalkine/KSPL can give you its Financial Services Guide by electronic means (including by website link or email). Before accessing our services, please read the Financial Services Guide available here.

Please wait processing your request...

Our Company

Useful Links

Contact Us

ISO Certified Market Research

Kalkine Solutions Private Limited, authorized representative of Kalkine Pty Ltd, holds ISO 27001:2022 certification bearing Certificate No.- IC-IS-2404072

Our Company

Useful Links

Contact Us

Disclaimer

The information given by Kalkine Pty Ltd ABN34 154 808 312 (Australian Financial Services License Number 425376) on this website is general information or advice only.

It does not take into account any of your personal objectives, circumstances or needs. Choosing an investment is an important decision. If you do not feel confident making a decision based on the recommendations Kalkine has made in our reports, you should consider obtaining personal advice from an authorised adviser.

There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. Terms & Conditions have been provided for our services, please go through them and also read our Financial Services Guide.

Our website may contain information on past performance of particular investments. Past performance is not an indicator of future performance. Hypothetical returns may not reflect actual performance. Any displays of potential investment opportunities are for sample purposes only and may not actually be available to investors.

The information on the website does not constitute an offer to sell securities or a solicitation of an offer to buy securities. Our reports contain general recommendations to invest in securities.

Copyright 2024 Krish Capital Pty. Ltd. All rights reserved. No part of this website, or its content, may be reproduced in any form without our prior consent.