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Why the Coca-Cola Amatil Ltd (ASX:CCL) share price is on the rise today

Credit: James Flynn

The Coca-Cola Amatil Ltd (ASX: CCL) share price is on the rise again on Wednesday.

At the time of writing the beverage company’s shares are up 2.5% to $9.90. This gain means its shares are trading within sight of their 52-week high of $10.22.

Why are they rising?

Last night The Coca-Cola Company announced its third quarter results and advised of other-than-temporary impairment charges of US$205 million related to Coca-Cola bottling operations in Indonesia that are jointly owned with Coca-Cola Amatil.

These operations are 70.6% owned by Coca-Cola Amatil and 29.4% owned by The Coca-Cola Company.

The impairment was primarily driven by revised projections of future operating results which reflect unfavourable macroeconomic conditions and foreign currency exchange rate fluctuations.

In its release today, Coca-Cola Amatil advised that it has previously noted challenges due to continued soft market conditions in Indonesia and recognises that the Indonesian Rupiah has fallen to its weakest level against the US dollar in more than 20 years. This has adversely impacted the performance of the business.

However, the company explained that just because The Coca-Cola Company has recognised an impairment, it does not mean that it will require an impairment. This is because the carrying value of their investments are different due to timing.

All in all, the implied valuation of the operation from The Coca-Cola Company’s impairment exceeds Coca-Cola Amatil’s carrying value of capital employed in it.

Though, as required by accounting standards, the company will review the carrying value of the operation as part of its year-end accounting processes ahead of the release of its FY 2018 results in February 2019.

What else?

As well as being relieved to see that there will be no impact for Coca-Cola Amatil, investors may be buying shares today after The Coca-Cola Company’s quarterly results came in ahead of expectations.

The global beverage giant beat analyst expectations on both the top and bottom line according to Bloomberg. This was driven by its successful focus on healthier drinks.

Should you invest?

While I think that Coca-Cola Amatil is a great company and has the potential to be a solid long-term investment, I would prefer to pick up shares at a cheaper price.

At present its shares are priced at a touch under 19x estimated full year earnings. At this level I would class it as a hold and would suggest investors consider sector peers such as A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) instead.

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Motley Fool contributor James Mickleboro 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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