CCL - Coca-Cola Amatil

[prawn_86]

CCL has limited exposure to growth economies, whilst the parent company in the US has exposure to India, China, Brazil, Russia, etc.

Growth exposure in Asia such as Indonesia etc aren't enough? I saw something recently about them now having a manufacturing plant in Indonesia

 

[barrisbear]

been looking at CCL for a few months now. bargin blue chip that will remain forever with indo markets?

has it only dipped due to the announcement the health council is TRYING to enforce strictly sales/ marketing?

 

[Ves]

CCL has been a pretty reliable business over the long-term and has some fairly resilient revenue streams.

However, I don't believe it is a "bargain" and these prices. At best it is probably fairly priced.

Reading the trading update in December 2012, I would assume EBIT will probably come in around the $880-910m range for the 2012 financial year.

Market cap is $10.2B and long-term debt is just over $2 billion in the 2011 accounts (the trading update says that 2012 will be in line with this). Enterprise value is about $12.2B.

EV / EBIT = approx 14 times.

Without looking too deeply into their cash flow or anything of that nature, some back of the envelop calcs tell me that ROIC is about 17% and the payout ratio is around 73%. If they achieved similar returns on their retained earnings going forward that is an implied growth rate of about 4.5-5%.

I would suggest that for this to be a bargain they would need to be growing faster than 5% per annum if I was paying 14 times EBIT.

Does their move into alcoholic beverages and Indonesia mean that they will grow in excess of 5%?

 

[RandR]

CCL has been a pretty reliable business over the long-term and has some fairly resilient revenue streams.

However, I don't believe it is a "bargain" and these prices. At best it is probably fairly priced.

Reading the trading update in December 2012, I would assume EBIT will probably come in around the $880-910m range for the 2012 financial year.

Market cap is $10.2B and long-term debt is just over $2 billion in the 2011 accounts (the trading update says that 2012 will be in line with this). Enterprise value is about $12.2B.

EV / EBIT = approx 14 times.

Without looking too deeply into their cash flow or anything of that nature, some back of the envelop calcs tell me that ROIC is about 17% and the payout ratio is around 73%. If they achieved similar returns on their retained earnings going forward that is an implied growth rate of about 4.5-5%.

I would suggest that for this to be a bargain they would need to be growing faster than 5% per annum if I was paying 14 times EBIT.

Does their move into alcoholic beverages and Indonesia mean that they will grow in excess of 5%?

Hey V,

Thanks for your input. EBIT growth in Indonesia and PNG was 19.3%, if that can be maintained as it grows as a percentage of their EBIT it would be quite impressive (obviously quite unlikely) but im sure theirs no end of dreamers that believe it probably could be.

I think its a little overpumped still at the moment (for me) I dont think its a deal until its below $11 personally. I like the reliable nature of the business and earnings but not interested much at all unless it heads below there.

The real key with this stock I think for the sort of investing you do is even if CCL does come down to a deal making price to always compare the purchase with that of KO. Obviously no point snapping up the bottler at a good price if you can get the concentrate/rights seller at a better deal. But then when purchasing KO over CCL direct currency exposure needs to be considered which could make the deal much more favourable atm

Id much rather own KO to CCL in the long term. (for what its worth KO is also trading at roughly about 14 times EV/EBIT at the moment aswell)

 

[Ves]

Hey V,

Thanks for your input. EBIT growth in Indonesia and PNG was 19.3%, if that can be maintained as it grows as a percentage of their EBIT it would be quite impressive (obviously quite unlikely) but im sure theirs no end of dreamers that believe it probably could be.

I think its a little overpumped still at the moment (for me) I dont think its a deal until its below $11 personally. I like the reliable nature of the business and earnings but not interested much at all unless it heads below there.

The real key with this stock I think for the sort of investing you do is even if CCL does come down to a deal making price to always compare the purchase with that of KO. Obviously no point snapping up the bottler at a good price if you can get the concentrate/rights seller at a better deal. But then when purchasing KO over CCL direct currency exposure needs to be considered which could make the deal much more favourable atm

Id much rather own KO to CCL in the long term. (for what its worth KO is also trading at roughly about 14 times EV/EBIT at the moment aswell)

Thanks RandR - I think the comparison in investment between KO and CCL is a good point. It's very interesting that they are trading on a similar earnings multiple.

Re the growth in Indonesia - this growth still has capex requirements (either funded by earnings or debt) and I don't see any reason why they would generate returns on incremental capital at a faster rate than their historical metrics in Australia. 19% EBIT growth p.a must mean they are throwing a fair bit of capital at it and I think this is highlighted by the recent acquisitions and purchases of plant. I think the main worry is that the returns in Indonesia turn out to be sub-par down the track - that's the worst case scenario. They seem to be fairly good capital allocators over the journey, so that may be seen as unlikely?

cheers
V

 

[JTLP]

Hey guys,

Been watching this one for a while...raced up to $15 now sitting mid $14's. They've experienced some pretty phenomenal growth over the last decade. I think once they fully implement the liquor side of the business they should see some pretty solid results; along with the Indo growth.

SPC section is a bit of a dog; yield isn't great...overall thoughts?

 

[tinhat]

Hey guys,

Been watching this one for a while...raced up to $15 now sitting mid $14's. They've experienced some pretty phenomenal growth over the last decade. I think once they fully implement the liquor side of the business they should see some pretty solid results; along with the Indo growth.

SPC section is a bit of a dog; yield isn't great...overall thoughts?

Great defensive with two growth prospects. Ongoing opportunities for higher margin specialty beverages in Australia plus the same again as well as a lot of growth prospects for the core Coke brand in Indonesia. I shake my head when I think that I sold this stock at $11 because it was "going nowhere" with a dividend yield well below other defensive stock at that time. I still keep renewing my standing order with Commsec for a buy at $12. Great defensive stock - will wait for an opportunity to buy (probably not at $12 unless the Koreans pop a missile off but I live in hope - j/k).

 

[JTLP]

Hi Tinhat,

Are you in today?

I don't see a lot wrong with the announcement as I believe it was what the market was expecting? (although clearly not!). EBIT down 8%-9%.

Special dividend (2.5cents) to cover the non-franked portion of divvie I believe.
Intraday low of $12.87 - currently $13.05.

See what happens at the close!

 

[ROE]

Coles and Woolies are on to them but I think they play it down..
The two giants want to squeeze ccl margin and they seem to be winning as demonstated in their 1st half

I have doubt about their second half forecast with coles and woolies on their tail easy days are over until
Coles and Woolies back off, not likely in next 12-24 months....

 

[tinhat]

Hi Tinhat,

Are you in today?

I don't see a lot wrong with the announcement as I believe it was what the market was expecting? (although clearly not!). EBIT down 8%-9%.

Special dividend (2.5cents) to cover the non-franked portion of divvie I believe.
Intraday low of $12.87 - currently $13.05.

See what happens at the close!

My days of catching falling knives are truly over and I mean it this time (he says as he bought GRR a couple of days ago!).

A company that isn't growing earnings can't justify a PE of 20. I look at CCL as a long term defensive growth stock. The real story is the long term potential of the Indonesian market. I got shaken out of CCL at 11.00 in 2011. I'll certainly keep my eye on it if it gets down below 12.00

It might rebound in the short term but I can't see it being good value above the 11.00-12.00 range.

One thing that concerns me is why CCL is hanging onto the SPC Admona business. Surely they should have divested of it a few years ago now.

CCL does encounter some radical price moves that are quickly reversed every blue moon. Perhaps today is one of them. The share price has been drifting up on volume that has been waning this year so it may have peaked for the current cycle?

 

[Gringotts Bank]

A lot of bad press relating to the health effects of soft drinks has to impact sales at some point.

 

[VSntchr]

A lot of bad press relating to the health effects of soft drinks has to impact sales at some point.

Yeah but even if thats true, its only at the expense of some of CCL's other brands which are perceived to be healthy....management is waay ahead on this one...

 

[ROE]

A lot of bad press relating to the health effects of soft drinks has to impact sales at some point.

I don't buy this argument.... Coles and Woolie squeeze their margin is more pressing and more impact
Most health studies barely change human consumption habit if it does it in low single digit.

If my stocks get hit for this sort of reason I load up

The healthy guys already healthy and they know what they eat and drink, the other just doesn't care even if you throw 100 studies at them.

It is actually very hard to stay healthy and eat healthy, it required strict discipline just like money management and investing.
very small population can do this.

 

[Gringotts Bank]

How do other suppliers to Coles and Woolies combat this tactic? Pull the product off the shelves until consumers complain? Or would Coles/Woolies just push their home brand and win market share?

 

[skc]

How do other suppliers to Coles and Woolies combat this tactic? Pull the product off the shelves until consumers complain? Or would Coles/Woolies just push their home brand and win market share?

There's no viable tactic. Branded producted who don't innovate and don't have brand power will get their margin and market share eroded over time. The structural decline of (most) FMCG brands is here to stay imo.

Coke is the biggest and baddest of them all when it comes to brand and marketing... and if they can't manage the supermarket channel's growing power, other suppliers don't have a chance.

 

[ROE]

How do other suppliers to Coles and Woolies combat this tactic? Pull the product off the shelves until consumers complain? Or would Coles/Woolies just push their home brand and win market share?

Not much supplier can do here apart from regulator intervene (cant see that happening, they make a lot of noises and headlines but nothing ever happen for the last 10 years) just like the unhealthy habit of Dominos pizza and fast food...lot of noises and these sucker keep rake in the profit...

the only sure way is more retail competition and not let one or two retailer dominate the market....
so far Australia failed in this space....

it sometimes said we are usually a few years behind the American trend

http://www.dailyfinance.com/2009/11...-cola-from-its-shelves-but-dont-cry-for-coke/
http://www.bevnet.com/news/2006/06-08-2006-wal-mart_coke_powerade_cce_private

I am surprise that management doesnt take this thing as a serious threat and splash extra cash on dividend when profit barely grow
and this stock is price for growth 5-10% a year....the time has come for a major re-rating...

 

[Gringotts Bank]

Sounds a bit grim. Thanks skc, ROE.

 

[ROE]

Coke still a good business it just has been price too expensively

so the fall in stock price is just a correction to a normal level and the expectation of
it growing going forward has to put on hold while they fight Coles and Woolies.

If you bought it cheap many years ago then it just a normal process of the business going through
as they grow older, bigger, smaller etc..

but I certainly wouldn't buy at this sort of price, it just has no margin of safety and price for perfection
in my book that is a recipe for disaster as a stock holder...

Never buy any business price for perfection regardless of who they are is my moto...you can control the planet
but if there is no safety net, you will get tripped it is not if it's when....

 

[Tyler Durden]

The healthy guys already healthy and they know what they eat and drink, the other just doesn't care even if you throw 100 studies at them.

It is actually very hard to stay healthy and eat healthy, it required strict discipline just like money management and investing.
very small population can do this.

I agree. Soft drinks are somewhat addictive - and most people don't bother making the effort to quit their addictions. If people are going to continue smoking despite those horrific lung cancer ads on tv and buses, then they sure as hell aren't going to stop drinking soft drinks because it contains sugar.

 

[JTLP]

I actually work for a company that made some headlines battling with Woolworths recently...and have to admit it's a big bad world and FMCGs don't stand the greatest chance (read SKCs point).

If you look at the UK - there is really only room for 1 - 2 branded products and the rest homebrand. The 2 majors openly state that their ambition is to have 20% of own branded products on the shelves - it drives better $ and margins etc etc.

Coke continually innovates and does this very well, are clearly the #1 player and really nobody can hold a candle to them in terms of taste...however what they pull out in the guidance is interesting. Retailers use these huge brands all the time to get people through the door...1/2 price a coke 1.25L in Woolworths and you can guarantee their basket spends for that week will be huge..vice versa for Coles. Whilst there are only 2 retailers they will squeeze and squeeze to get more of these deals and more of these baskets. This is definitely going to have an impact on the bottom line.

If all else fails and the retailers are feeling greedy...they can just import :. I believe both majors have teams actively looking for import options...