Coca-Cola Amatil Ltd's (ASX: CCL) future in the Indonesian market will be a key topic when the company's board meets with senior executives from The Coca-Cola Company (TCCC)– which owns 29% of CCA – this week.
While the Indonesian market has long been considered Coca-Cola Amatil's key growth market, its growth has been seriously stunted in recent years as a result of wage inflation. In fact, The Australian Financial Review reports that the company has spent $1.3 billion on the Indonesian franchise over the last 22 years while Credit Suisse suggests the earnings have been roughly the same in that time, suggesting the region may not be as promising as once thought.
Given the poor returns thus far from the Indonesian arm, it would be fair to assume many CCA shareholders would be uncomfortable with committing any more capital to the franchise. Instead, many would prefer to see the money spent on improving the company's position in the Australian and New Zealand markets, which have also been struggling in recent years and form more than 80% of the group's overall earnings.
For TCCC however, it seems Indonesia is still a key prospect and a vital cog in its plan to double the size of its business by 2020. As such, TCCC is reportedly eager to inject anywhere between $600 million and $1 billion dollars into the region in an effort to compete with rival Big Cola in terms of costs and product prices. In fact, reports suggest TCCC could even take direct ownership of the Indonesian venture while it could also take back the Indonesian license and give it to another bottler instead, in the worst case scenario.
Despite the tensions surrounding the meeting between the two parties, the stock has still managed to edge 1.1% higher in yesterday's session. While there are certainly some headwinds facing the business' prospects, I still believe it is a great buy today.
An even better buy than Coca-Cola Amatil
Trading at its lowest price in more than five years, Coca-Cola Amatil appears to be a great buy for long-term investors willing to look beyond the short-term issues plaguing the business. However, there appears to be an even greater buy which you should seriously consider taking a look at…
