The Motley Fool

Why I think Coca-Cola Amatil Ltd is a buy at this share price

Coca-Cola Amatil Ltd (ASX: CCL) has been a dreadful investment over the last 5 years, down 36%. I reckon it may have bottomed, as its defensive qualities become better appreciated.

Coca-Cola Amatil is primarily a Coca-Cola franchisee in Australia, New Zealand and Asia, notably Indonesia. 60% of group revenues come from Australian Beverages, the majority of which are carbonated. The latter market has been in decline, falling 5% in the first half of 2017. However, there are plenty of growth parts in Coca-Cola Amatil too, notably a growing presence in Indonesia and in the Alcohol and Coffee sector.

Judging by the share price you would think that its profits had collapsed over the last few years. In fact they have been resilient.

In 2016 Coca-Cola Amatil reported underlying NPAT of $416m and EPS of 54.7c, both of which were up 6.5% on the previous year. The most impressive statistic for me, however, was that Coca-Cola Amatil generated $390m of free cashflow, its highest for 10 years.

Track forward to the first half of 2017 and NPAT fell 4% to $190m. The EPS decline was lower at 3% due to a $250m share buy back. Return on Capital employed actually increased from 19% to 20%.

The company reports that with pressures in the local carbonated markets starting to abate, it should deliver full year 2017 NPAT broadly in line with last year.

The company is targeting mid-single-digit EPS growth over the medium term. The $80m Richland automation project is a good example of growth, as it will add capacity in growth areas such as juice and dairy. The Richland project is fully funded by the sale and leaseback of its freehold.

Foolish takeaway

Investors have focused on growth stocks and cyclical upturns in 2017. Next year may see an increasing focus on defensive stocks. To my mind Coca-Cola Amatil fits the bill. It also yields an above average 5.4%, fully franked. Will the shares turn? Arguably they already have, rising 6% since an analyst’s visit three weeks ago. I think there will be more to come in 2018.

NEW. The Motley Fool AU Releases Five Cheap and Good Stocks to Buy for 2020 and beyond!….

Our experts here at The Motley Fool Australia have just released a fantastic report, detailing 5 dirt cheap shares that you can buy in 2020.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading over 40% off it's high, all while offering a fully franked dividend yield over 3%...

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click here or the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!

Motley Fool Australia contributor James Middleweek has no financial interest in Coca Cola Amatil. The Motley Fool Australia has recommended Coca-Cola Amatil Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.