A Coke and a beer chaser


Coca-Cola Amatil (ASX: CCL), the Australian company best known for bottling the world’s favourite – and its namesake – beverage (well, other than water), today announced it had increased first-half profit by 5.6%, driven by a solid result in its Australian business, and a very impressive result from its Indonesia and Papua New Guinea division.

Australian revenue grew by almost 5%, driven by both volume and pricing gains, delivering an identical growth in the division’s EBIT, while the New Zealand and Fiji business suffered losses in both revenue and profit.

The Australian result was notable, given the very wet summer in much of eastern Australia, and the aggressive grocery discounting undertaken by Woolworths (ASX: WOW) and Coles, owned by Wesfarmers (ASX: WES).

Indonesia continues to be a bright spot, with sales jumping almost 22%, and profit 19% as it delivers both volume and pricing gains. Average prices remain 30% below Australian benchmarks, and the company continues to broaden penetration of its products into the Indonesian market.

All of the attention today was focussed on the company’s re-entry into the premium beer market, via a loan to Casella (makers of Yellow Tail wine, among others) to acquire and expand a brewery in Griffith, New South Wales.

If a loan sounds strange, that’s because Coca-Cola Amatil is prevented from re-entering the premium beer market until December 2013, under the terms of a deal it signed when it sold its stake in the Pacific Beverages joint venture to SAB Miller when that company acquired Fosters Group.

When the company is allowed to rejoin the fray, the loan will convert to an ownership stake in a joint venture with Casella, and CCA will actively re-enter the premium beer market.

CCA managing director Terry Davis has reiterated the company’s medium-term goal of gaining 10% of the premium beer market and gave every indication that it will be speaking to many of the premium beer manufacturers to offer them an ‘independent’ distributor in the Australian market.

Foolish takeaway

While Coca-Cola Amatil is best known in the Australian market for its soft drink bottling business, the  better opportunities for the company are almost certain its re-entry into the premium beer market (it has retained its spirits business) and the continued expansion in Indonesia.

In fact, it’s entirely likely that the Indonesian business will be larger than the Australian market – at least in revenue terms – in less than a decade if the company can continue to compound its sales at the same rate into the future.

That potential is what gives the company some potential fizz for investors, and why today’s price may not be as expensive as it seems.

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Scott Phillips is an investment analyst with The Motley Fool. He owns shares in Woolworths and Coca-Cola Amatil. You can follow Scott on Twitter @TMFGillaThe Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

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