Should you buy Coca-Cola Amatil?

Coca-Cola Amatil (ASX: CCL) certainly doesn’t appear cheap at first glance. The shares are trading for a whopping 24 times …

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Coca-Cola Amatil (ASX: CCL) certainly doesn’t appear cheap at first glance. The shares are trading for a whopping 24 times earnings, or an EV to EBITDA ratio of about 12.

In just the last year, CCL shares have packed on 16%, outperforming the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) by a couple of percentage points. This run-up begs the question of whether Coca-Cola Amatil can grow its business in line with the share market’s great expectations. Let’s weigh up the company’s growth prospects.

Move back into the beer market

In December of this year, Coca-Cola Amatil will once again enter the Australian beer market. As part of a 50-50 joint venture with Yellow Tail winemaker Casella, the company will brew premium beers for the Australian market and may also look to acquire licenses for foreign brands. Chief executive Terry Davis has stated a goal of making $50 million in annual profit from this new business line within the first five to 10 years. (Coca-Cola Amatil’s net profit totaled $460 million in 2012.)

This somewhat modest goal — the Australian beer market is thought to be worth about $1 billion in profit annually — would place Coca-Cola Amatil as the third biggest beer company by profit Down Under. It seems eminently achievable with Coca-Cola Amatil’s extensive sales force and installed base.

What’s more, the alcohol business is one that Davis (in the chair until August 2014, it should be noted) knows well. Davis was head of the wine division for Foster’s before he left that position to take up the post at Coca-Cola Amatil.

You can see Davis’ business prowess in the space with the company’s push into cider as well. As Business Review Weekly reported recently: “Davis has also created a strategic stake for CCA in the alcoholic beverages market, with a long-term exclusive agreement to distribute Sweden’s Rekorderlig alcoholic cider in Australia from January 1, 2014. Alcoholic cider is the fastest-growing alcoholic beverage category in Australia, generating sales of $550 million and increasing by 20 per cent annually.”

Still, in Australia, Coca-Cola Amatil will continue to face pressure from retailers like Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) with their incredible grip on both soda and beer and liquor retail.

Prospects for growth in Indonesia

Further growth for Coca-Cola Amatil is likely to come from Indonesia. The company is adding bottling plants around the country and increasing its marketing spend significantly, with the expectation of clearing $1 billion in sales there this year, a first for the company and a figure that could keep growing for years to come.

In all, it appears Coca-Cola Amatil’s future is indeed bright. Yet much of this bright future already appears to figure in the share price. Investors may want to put CCL shares on their watch lists in the hope of a pullback.

Meanwhile, two small ASX companies with big growth prospects are trading for far more reasonable prices. Get the names and codes now in our brand-new FREE special report,“2 Small Cap Superstars”. Simply click here now, it’s free.

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, 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.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Catherine Baab-Muguira does not own shares in any of the companies mentioned in this article.


More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »