The world’s third-largest spirits producer Beam Suntory, has reaffirmed its commitment to a 10-year venture with Australia’s Coca-Cola Amatil (ASX: CCL).
Coca-Cola Amatil has only recently re-entered the alcoholic beverages sector, after a two-year hiatus, and the move could pay big dividends for the troubled company and its loyal shareholders.
Hit by increased competition from private label brands in Australian supermarkets, price-cutting by its largest competitor, Schweppes and struggling to turnaround its fruit and vegetable processor, SPC Ardmona, Coca-Cola Amatil has seen its shares plummet from a 52-week high of $13.40 last year to as low as $9.00.
Both Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Limited (ASX: WES) have been pushing their home branded soft drinks, while at the same time increasing the pressure on suppliers like Coca-Cola Amatil and bread maker Goodman Fielder Ltd (ASX: GFF) to cut their margins.
Coca-Cola Amatil’s deal with Beam Suntory was extended for ten years in 2013 until December 2023, and is expected to generate sales of around $300 million, according to the Australian Financial Review.
The company will be looking to its alcoholic beverages, which include beer and cider as well as the distribution deal with Beam Suntory to underpin future growth in revenues. Add in potential for sales in Indonesia to grow strongly, SPC Ardmona to turn around and pricing pressure in Australia to ease, and there are several additional reasons to be positve about Coca-Cola Amatil’s future.
At current prices of around $9.90, and paying a decent fully-franked dividend yield of more than 5%, if you don’t already own Coca-Cola Amatil, now might be the perfect time to pick up some shares on the cheap.
A better bet than Coca-Cola Amatil
While Coca-Cola Amatil represents an excellent long-term bet, there is another company that is firing on all cylinders and looks set to climb much, much higher.