The uncertainty in the market has created something of an excessive focus on defensive investments, and Coca Cola Amatil has been one of the candidates for that play. Analysts are looking pretty non-committal. Merrill notes that the company “pretty much pre-announced its result” so it was very much in line with expectations. It has a buy and a price objective of $14.55. Goldman has maintained its neutral rating, saying it is a high quality company with a strong track record and a defensive earnings stream, but all that is factored into its forward earnings multiple of 17.2 times.
UBS reckons the result is sound in what have been difficult conditions, but sounds a not of caution:
“CCL report 1HFY12 EBIT growth of 4% to $402m (UBSe $406m). Segmental performance is mixed with earnings driving Australian segment softer but ahead of earlier expectations thanks to a strong finish to the period. However, CCL concede that cost increase recovery through price was not achieved in the period, reflecting the tougher conditions. Group wide, soft drink volumes up 4.6% and soft drink unit value up 3.1% – Indonesia remains the fastest grower.
␣ Nov/Dec is the swing factor & 1H performance gives limited insight With up to 35% of FY earnings delivered in Nov/Dec where weather plays a significant role, it is difficult to have a high conviction on FY estimates at this stage. While 1H performance is solid in an adverse environment, it provides limited read-through for 2H and tough trading conditions remain. Diligent monitoring on 2H retail conditions required.”
Deutsche has a buy and an optimistic assessment:
“While Amatil clearly benefited from family assistance payments, in our view the very strong 2Q Australian volume growth is a testament to the power of the Coca-Cola brand suite. We acknowledge the group’s premium rating but it looks reasonable relative to other bottlers in the Coca-Cola system and we believe its relatively reliable earnings stream remains an attractive investment proposition in the current uncertain environment. The pipeline of value accretive efficiency projects, exposure to developing markets and potential upside from beer should continue to deliver robust growth for a number of years. Buy rating retained.”
Deutsche has the stock on a forward earnings multiple of 18.6 times, which is high in the current market. The prospective yield is 4%, which is not high in the current market. On fundamentals at least, the focus on the defensive character of the company has made the investment a less than defensive one.