Is it time to buy beaten-down Coca-Cola Amatil Ltd?

Has the market punished the share price too much?

| More on:

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

Although the S&P ASX All Ordinaries Index (ASX: ^XAO) is hitting new 52-week highs, there are always going to be some big stocks that had a rough half year and are being held back. What has to improve for them to start upwards again? While they’re at low prices, could now be an opportunity to take advantage of short-term weakness?

The regional bottler of the world’s most famous soft drink, Coca-Cola Amatil Ltd (ASX: CCL), had a quick fall off in share price this month, dropping from about $11.40 to $9, when it announced that group EBIT before significant items were 15% down for the first half.

Heavy write-downs in 2013

Its 2013 result was a much lower statutory net profit than previous years, though shares began to sell down before then from about $15. The majority of the $422.9 million in significant items was a write-down of assets in SPC Ardmona, the vegetable and fruit cannery. The items were mostly non-cash figures, so have little impact on operations.

Re-entry into alcoholic beverages market

Difficult trading conditions in Australian grocery channels led to a decline in beverage earnings. Yet from December the company re-entered the premium beer and cider market and is expanding its alcoholic beverage platform to improve earnings and margins.

The company will be also conducting a business review, which is shorthand for “cost cutting”. If it can realise savings to offset market weakness, then together with extra revenues from the alcoholic drink business, it may put a floor under the share price.

Share price and earnings growth

The share price is $9.36 and the PE is 15, which is at the bottom of its historic PE range. The dividend yield is 5.4%. The company usually achieves a median 5%-6% annual earnings growth, so investors should look towards the steady annual dividend income, while waiting for share price appreciation.

Foolish takeaway

The company operates in several different countries, so one other effect on earnings is currency fluctuations, such as the weak Indonesian rupiah.

I would wait to see how the initial sales figures for alcoholic beverages are in the half-year FY2014 report to gauge the progress.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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 »