If you had posed the question to most investors one year ago at the start of the 2014 financial year if they thought leading beverage manufacturer Coca-Cola Amatil Ltd (ASX: CCL) would underperform the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) by a whopping 38.5% over the course of the financial year you probably wouldn't have found too many saying 'yes'.
But guess what – that very situation has unfolded! With one day to go until the close of the tax year the index has gained a respectable 13.4%, while the blue chip Coca-Cola Amatil has lost 26.3%.
Although it has certainly been an unpleasant twelve months for shareholders, it is possible that the worst of the falls are now in the past with the future outlook more promising. In other words now may be a very bad time to sell.
Here are three reasons to stick with your Coca-Cola Amatil shares:
1) A 5.4% dividend yield. Not surprisingly the fall in share price has been in response to a decline in earnings. Judging by analyst consensus forecasts earnings should bottom in FY 2014 and bounce back in FY 2015. The dividend is also forecast to recover and although at 51 cents per share (forecast) it won't be as high as the FY 2013 dividend of 58.5 cps, the fall in share price has the stock trading on a very attractive yield.
2) Beer and Indonesia offer exciting growth opportunities. Coca-Cola Amatil's re-entry into the premium beer market sees the company – via its interest in the Australian Beer Company – have the manufacturing capacity to cater to approximately 15% of the domestic premium beer market.
Historically there has been a direct link between growth in disposable income and increases in per capita consumption of commercial beverages. With Indonesia's disposable income growing at a compound annual growth rate of 10% this bodes very well for Coca-Cola's Indonesian business.
3) As newly installed Managing Director Alison Watkins,who was previously the head of grain handler Graincorp Ltd (ASX: GNC) stated in a recent interview with the ABC, the company is undertaking a thorough review and introducing a flatter operating structure. Coca-Cola Amatil has also spent around $500 million over the past five years on supply chain and IT investments. In total, these strategic moves position the business for improved performance in the future.
