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Citi sees bigger takeover offer coming for Coca-Cola Amatil (ASX:CCL) share price

higher takeover offer CCL

The Coca-Cola Amatil Ltd (ASX: CCL) share price is trading flat but that’s a good outcome for the takeover target.

The CCL share price is holding at $12.94 during lunch time trade. That’s a positive because the S&P/ASX 200 Index (Index:^AXJO) lost 0.2% of its value and the stock is still trading above the offer price.

Coca-Cola Amatil received a takeover offer worth $12.75 a share from its European counterparts late last year.

Bigger takeover offer for CCL waiting to pop

Many criticized the bid as being opportunistic and have called it a lowball offer as the group has been severely impacted by COVID‐19.

The market agrees and that explains why the stock is trading around 1.5% ahead of the offer price.

Citigroup believes a higher offer is forthcoming and that the next set of results could be a catalyst for a higher offer.

COVID recovery adds fizz

“Like most companies, Amatil had a difficult June ’20 half (1H20), given lockdowns in key markets,” said the broker.

“However, volumes have improved in Australia, NZ and PNG, while Indonesia is still in double-digit decline.

“With group volumes down ~5% in 2H20e, we estimate EBIT could be flat YoY, with lower costs the driver.”

Coca-Cola Amatil could beat consensus

If Citigroup is right, Coca-Cola Amatil should deliver first half earnings per share (EPS) of 31.5 cents at the February reporting season.

This would imply a full year EPS of around 58 to 59 cents a share for 2021 (the group’s financial year is the same as the calendar year). That would be substantially ahead of consensus forecasts of 52 cents a pop.

Cost control key to higher offer price

Citi’s EPS forecast is driven in large part by good cost control. Coca-Cola Amatil moved quickly to cut costs during the onset of the pandemic and is estimated to have saved around $120 million in 2020.

The broker thinks these savings will be sustained this year, and if volumes recover, margins will expand at a greater pace.

How much more can CCL shareholders get?

Citi believes the next six weeks will be critical. When the group releases its results in mid-February, it will form the basis for the debate about the group’s future earnings trajectory.

“The continued recovery of volume and earnings for Amatil increases the possibility that a higher bid emerges,” explained the broker.

“We would still view an upside case as modest, perhaps a larger dividend could be retained by shareholders in February 2021.

“A bump of 25-50 cents per share is possible in our view.”

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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