Often when looking for an investment idea, we are attracted to the companies who we are most familiar with, and the ones that serve us in our everyday lives. Whilst this can be a fantastic approach to investing, it is also important to consider the current trading price compared to future growth prospects of that company.
Coca-Cola Amatil (ASX: CCL) (“CCA”) fits this description. We are all familiar with the world-beating products that it sells, with many people consuming its goods on a daily basis. Operating in Australia, New Zealand, Fiji, Indonesia, and Papua New Guinea, the company has an enormous distribution network, with access to over 265 million consumers through more than 700,000 active customers.
Investors reacted positively to the company’s full year results, which delivered revenue growth of 6.3% compared to 2011, whilst dividend payouts increased to 59.5 cents as opposed to 52.5 cents. On the other hand, net profit after tax actually fell by 22%, which the company attributes to impairment charges at its food processing division, SPC Ardmona.
CCA, much like other companies such as Warrnambool Cheese & Butter Factory (ASX: WCB), has been affected by the high Australian dollar, which has made local products less competitive against imports. CCA was forced to write down goodwill by $48 million and inventory and assets by $98 million as a result.
However, the company expects over $1 billion in revenue for the first time this year from Indonesia and Papua New Guinea alone. With Coca-Cola (NYSE: KO) – which owns 29% of CCA – planning to invest $700 million in Indonesia over the next three years, this should further drive growth for CCA over the medium-long term, after realizing strong volume growth of over 11% in the region last year.
By looking at the share price history, it can be seen that CCL has been a fantastic, consistently performing company for shareholders. Over the past 10 years, investors have realised an average gain of 14.3%, and a 17% gain since this time last year.
As mentioned above, however, while it is great to invest in strong companies that we all know and love – and which have consistently been great performers for shareholders – the question must be asked: is it still attractive at today’s price?
CCA has a strong management team, unbeatable brands, and is planning to re-enter the beer market later this year. With its Indonesia section anticipated to provide long-term growth, this is certainly one of Australia’s most dominant companies. However, with a P/E ratio over 19, the company’s share price currently reflects the quality of business that it is – leaving a small chance of beating the market in the long term.
Should the company’s share price fall significantly in the future, it is well worth considering for your portfolio.
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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 contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
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