Coca-Cola Amatil

About the author:

Belinda Moore
Author name:
By Belinda Moore
Job title:
Senior Analyst
Date posted:
30 August 2016, 8:22 AM
Sectors Covered:
Agriculture, Food & Beverage, Travel and Chemicals

1H16 - emerging segments were the highlights

Revenue was up 2.8%, EBIT rose 3.2% and NPAT increased 7.8%. We believe that Coca-Cola Amatil (CCL) is now close to achieving its A$100m cost out program (ahead of schedule). Strong NPAT growth was assisted by net interest expense falling by 25.9% following the Coca-Cola Company's US$500m investment in Indonesian operations. All regions expect SPC and Australian Beverages (5.8% decline in Sparkling Beverages) benefited from volume growth. However all regions saw price deflation. The Australian Beverages performance disappointed with EBIT falling 1.9% - clearly structural issues continue to impact the business. 

The result from Indonesia & PNG was the highlight with EBIT up 65%. While the result benefited from 10 extra days of Ramadan, solid progress has been made given economic conditions remain soft. The Alcohol & Coffee result was also pleasing with 33.6% EBIT growth. New Zealand and Fiji continue to post solid results (+5.4% EBIT growth).

Guidance for mid-single-digit EPS growth reiterated

Earnings will be skewed to the 2H16 in line with seasonal trends and new product benefits following the launch of Monster Energy and FUZE tea to name just a few. CCL continues to target mid-single-digit EPS growth over the next few years. It is focused on returning to sustainable growth through category leadership and greater efficiency and productivity. We believe that there is upside to CCL's A$100m cost out program (further benefits will likely be announced at the investor day on 21 October). We have made only minor changes to our EPS forecasts as our forecasts were previously ahead of consensus. After a stronger than expected result, we expect consensus upgrades.

Investment view

Coca-Cola Amatil's (CCL) result beat expectations and should be well received. Management are doing a good job turning around a business with structural headwinds. We believe that the Australian Beverages business will continue to be a challenge for CCL, however this should be offset by strong growth in emerging regions and the Alcohol business. 

CCL continues to offer investors an attractive dividend yield (c5.0%). With the stock trading on an FY16F PEG of 1.9x, we believe the stock is fairly valued and maintain a Hold recommendation.

More information

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