In all honesty, Coca-Cola Amatil Ltd (ASX: CCL) shares have proven to be a pretty ordinary investment.
Over 10 years, its shareholders have enjoyed the equivalent of a 6.4% compound annual return. Otherwise known as the 'total shareholder return' (TSR) that pretty lousy figure includes both dividends and capital gains.
By comparison, despite its recent selloff, Woolworths Limited (ASX: WOW) shareholders are sitting pretty with the retailer boasting a TSR of 9% per year.
So with the company's share price down a modest 3% in 2015, it begs the question:
Has Coca-Cola Amatil gone flat for good?
While there is no easy answer to the question, there are a couple of considerations investors need to make.
Firstly, profits from the Coca-Cola brand — globally — appear to be falling by the wayside.
For CCA, as the bottler and distributor of Coca-Cola products to six nations across the Asia Pacific these declining profits are not good.
Second, consumers are becoming more health conscious. First it was cigarettes, could fizzy drinks be next? While it may seem trivial at first, long-term investors seriously need to consider the merits of this argument because, in my opinion, it is the difference between a buy and sell rating on the stock. Recently, we've seen CCA launch 'Coke Life' and accelerate its push into flavoured milk.
Thirdly, is the price war between Woolworths and Coles – owned by Wesfarmers Ltd (ASX: WES) – about to get serious? If so, investors may be forced to wave goodbye to any assumption of a 'return to the mean' for profit margins.
Finally, CCA's ownership of SPC Ardmona, the iconic Australian tinned fruit business, has long been a lag on overall returns. Intense international competition, wage pressure and general lack of competitiveness have forced the company to make tough decisions and shareholders to dig deep.
Looking ahead, a lower Australian dollar may make it less appealing for its international rivals to sell products locally. This is good news. However, what isn't good news for CCA's premium Coke and tinned fruit brands is the rise of home brand products, which are being pushed in consumers' faces by Woolies, Coles and Aldi.
Buy, Hold or Sell
Up until very recently, CCA was a stock I held LONG warrants on (that means, I'm betting the share price goes up!) because I estimated it was worth around $11. With time against me on my warrants, I sold out.
However, if – and it's an important 'if' – you believe there is an opportunity for CCA to return its profit margins to the levels of 2012-2013 and keep sales just roughly in line with what they are today – its shares appear undervalued.
Conversely, if the best days of rotting teeth are behind us, or you think the supermarket war will get worse before it gets better, it might be time to look for other opportunities…
