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Stockwatch: Coco-Cola Amatil (CCL)

August 5th, 2014 · Greg Atkinson · 4 Comments

It’s been a while since I’ve looked in detail at an ASX listed stock mainly because for the last year or so I have been focused on overall market trends or groups of stocks. But recently one stock – Coca-Cola Amtail (ASX:CCL) – has caught my attention and it may have the potential to provide patient investors a good return.

According to the company’s website: “CCA is one of the largest bottlers of non-alcoholic ready-to-drink beverages in the Asia-Pacific region and one of the world’s top five Coca-Cola bottlers. CCA operates in six countries – Australia, New Zealand, Indonesia, Papua New Guinea, Fiji and Samoa. CCA employs 14,900 people across the Group and has access to 270 million consumers through more than 700,000 active customers. CCA’s diversified portfolio of products includes carbonated soft drinks, spring water, sports and energy drinks, fruit juices, iced tea, flavoured milk, coffee, tea and SPC Ardmona and Goulburn Valley packaged ready-to-eat fruit and vegetable snacks and products.”

So generally speaking, Coca-Cola Amatil is well established in it’s core markets, has operations outside of Australia, room for growth and is what we could call a “Blue Chip” stock. But in 2013 CCL started to hit a rough patch and is now trading below where it was in 2009!

In April this year the new CEO via an ASX announcement mentioned the company faced challenging trading conditions and a strategic review of operations is in progress. In May 2014 the first major re-organisation was implemented with changes made to the Australian Beverages business unit which included appointing a new managing director. Further organisational changes are likely.

So far however none of this has pleased investors with CCL shares now trading around $9.30 which is quite a fall when you take into account they were above $15 in the first half of 2013.

Coca-Cola Amatil (ASX:CCL) 5 Year Stock Price Chart

ccl_5_year_stock_chart_aug_2014

Looking at the 5 year chart above it clear how the events from 2013 onwards have hit CCL’s share price and it is currently what I would call an un-loved stock with analysts rating it either as a hold or a sell from what I have seen.

If we now look at chart below of the CCL stock price performance versus the ASX All Ords it becomes even clearer why investors are not that keen on this stock at the moment.

Coca-Cola Amatil (ASX:CCL) versus ASX All Ordinaries Index (ASX:XAO) 3 Year Chart

ccl_vs_asx_3_year_chart_aug_2014

But there are things to like about CCL. Firstly it pays a tidy dividend of around 5.5% (75% franked) and the company has an operating margin of just over 20% with a very healthy Return on Equity (ROE) of around 29%. However the Price to Earnings (P/E) ratio of around 16 is nothing to get excited about nor the Price to Book (P/B) ratio at 4:1. In addition the debt/equity is almost 180%  and is a bit of a concern.

So my view is that CCL is a stock to monitor and if the price was to fall below or close to $9 then I would be tempted based on the assumption that the new CEO and the strategic review will lead to improvements across the company, give sales a boost and more importantly for investors – push the share price higher.

But please note! I am not suggesting CCL is a buy, I am simply suggesting it’s a stock to watch and that it could be a possible turn-around play. But buying into a stock at the start of a strategic review and during a time when the company faces challenging conditions is risky!

Also the 1 year chart for CCL )see below) doesn’t inspire a lot of confidence and there could easily be another sharp movement downwards.

Coca-Cola Amatil (ASX:CCL) 1 Year Stock Price Chart

ccl_1_year_stock_chart_aug_2014

So in summary my view is that CCL is definitely a stock worth watching with the potential to provide investors with a good return over the next few years. However if the strategic review and resultant changes don’t deliver results and/or business conditions deteriorate further then the stock may fall further, so gains are by no means assured! Also as always I urge investors to do their own research and seek competent financial and/or investment advice as/if required.

This article was written by Greg Atkinson who is the Managing Director of Ohori Capital. Greg is from originally from Sydney but now works and resides in Japan. He can be followed on twitter via GregAtkinson_jp


4 responses so far ↓

  • 1 lachlan // Aug 9, 2014 at 2:55 pm

    that chart looks worrying Greg…not much buying there after the sharp drop

  • 2 Greg Atkinson // Aug 10, 2014 at 10:42 am

    Not a lot happening yet Lachlan but with CCL I am willing to wait and if I miss out on taking a position, then so be it.

  • 3 opinder // Aug 11, 2014 at 10:37 am

    Hi Greg..Agree with you looks like a potential stock but long term though.

    Me too keeping an eye as well….They did had to bail out SPC foods which is owned by CCL I believe..So large chunk of cash went there too..I might be wrong but lets wait n see

  • 4 Greg Atkinson // Aug 12, 2014 at 8:57 am

    I agree opinder, for me CCL is a wait and see stock especially since it is in the midst of a strategic review. (these things can go either way)

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