If you own shares of beverage manufacturer Coca-Cola Amatil Ltd (ASX: CCL), there’s a good chance you’re eagerly awaiting an update to the company’s strategic review, which is expected to be provided on Thursday this week.
While some investors will no doubt be concerned in the lead-up to the update – fearing even more bad news following years of underperformance – others will be excited to see whether there is an excellent buying opportunity in the wake of a major restructure.
It is expected that the company’s new Managing Director, Ms Alison Watkins, will announce a huge reduction in capital expenditure whereby costs will be reduced by up to $100 million over three years. Unfortunately, this will most likely involve significant job cuts – particularly in production and distribution – although jobs could be added in sales.
It is likely that the proceeds from these reduced costs would be put towards improved marketing, lowering prices and further product development to help strengthen the company’s market position.
Speaking of product development, Coca-Cola Amatil could be set to announce its first new cola product since the highly successful launch of Coke Zero in 2006. The new product, named Coke Life, is sweetened with stevia and has 60% less calories than regular Coke products, which should appeal to the more health-conscious population. This has of course been one of the major long-term concerns facing investors, whereby more and more consumers have turned to healthier alternatives such as bottled water.
The product’s performance has been evaluated in other markets in recent months and would likely need to be launched in the very near future in Australia, as demand for soft-drinks tends to rise during the summer months.
The company’s position in Indonesia will also come under question. The Indonesian market, which has for a long time been seen as Coca-Cola Amatil’s greatest growth opportunity, remains significantly cash-flow negative and the company is reluctant to pump any more funds into its development. However, Indonesia remains a key market for CCA’s parent entity, US-listed The Coca-Cola Company, so it will likely be a key focus of the Coca-Cola Amatil board.
One option has been for CCA to sell part of the Indonesian business to The Coca-Cola Company to help fund such growth. Other options that have also been speculated on include an equity raising – which would further dilute shareholder ownership – or the sale of CCA’s market-leading Mt Franklin bottled water brand which could be worth up to $800 million.
Should you buy?
Understandably, there is a lot of doubt in the air surrounding Coca-Cola Amatil’s prospects. On the one hand, you’ve got a struggling entity whose shares continue to plummet in price. On the other, you’ve got a great business with a focused management team and world-renowned brands in its arsenal.
Despite how much I like Coca-Cola Amatil as a long-term investment prospect, investors may be better off waiting until after Thursday’s update to buy. While the shares could fall further in price (giving an even better buying opportunity), investors will also be given a clearer picture regarding the direction of the company moving forward.
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Motley Fool contributor Ryan Newman owns shares in Coca-Cola Amatil Ltd.