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The real reason Coca-Cola Amatil Ltd (ASX:CCL) is popping higher today

Credit: Bill Dan

The rally in the share price of Coca-Cola Amatil Ltd (ASX: CCL) today could be confusing many as the company has issued no news and its products have come to represent the many things wrong with our society – obesity and environmental waste.

But don’t mention that to investors as the stock has jumped 2% to $9.63 in afternoon trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up a more modest 0.7%.

If you are looking for a reason for the share price run, you will need to look overseas. The NYSE-listed mothership, The Coca-Cola Co, posted an impressive result last night and that’s giving the local bottler here a nice sentiment boost even as some question the strength of the logic.

The Coca-Cola Co turned in a result that was ahead of consensus with organic revenue growth of around 5% as consumers developed a taste for its “healthy” alternatives like Coke Zero and Diet Coke.

That’s a relief to the market as consumers around the world are becoming more conscious about the health effects of taking in too much sugar. I guess doctors have yet to prove artificial sweeteners are carcinogens and/or people are less afraid of cancer than heart disease.

What may have also gotten ASX investors excited are comments from The Coca-Cola Co about the performance in Asia Pacific – which covers markets under Coca-Cola Amatil.

Organic growth in Asia Pacific was over 5% in both the March and June quarters with the mothership commenting that the June quarter growth was driven by China, India and Vietnam, according to Morgan Stanley.

What this says to the broker is that Australia and Indonesia (markets under Coca-Cola Amatil) grew at less than 5% in the first half of calendar 2018.

“The earlier Ramadan period (11 days) should have pulled forward revenues from 2H to 1H for CCL in Indonesia,” said Morgan Stanley.

“So, the volume recovery (Indo/PNG volumes were -1.2% in 2017) in Indonesia still looks a little way off.”

Ramadan is the most sacred month of the year for Muslims who have to fast from dawn till dusk and abstain from pleasures (like consuming sugary drinks).

For this reason, Morgan Stanley has reiterated its “underweight” recommendation on the stock with its price target of $8 a share.

A better beverage stock to back is A2 Milk Company Ltd (ASX: A2M), in my view. While the health benefits of the A2 milk protein is yet untested, at least it ticks more boxes for socially-responsible investing.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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 Scott Phillips.

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