interesting article, page-3

Why Coca-Cola Amatil could be a bargain
By Regan Pearson - January 10, 2014




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Coca-Cola Amatil (ASX: CCL) is not loved by Mr Market at the moment. Shares in the iconic beverage maker are down 11.7% in the last 12 months, while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has climbed more than 12%.

Aggressive pricing pressure from supermarket chain Woolworths (ASX: WOW) has contributed to this, but the company still commands an unrivalled 65% of cold-drink shelf space in Australia and has growth on the cards. Coca-Cola Amatil may not immediately stand out as a bargain, but the market could be overlooking several key factors.

A “forever” brand

Coca-Cola commands one of the most recognisable brands the world over. In 2013 Warren Buffett, who started buying shares in parent company, Coca-Cola (NYSE: KO), in 1988, was invited along to Coca-Cola’s annual general meeting where he explained his enduring optimism for the company: “I’m the kind of guy who likes to bet on sure things,” said Buffett, “I like wonderful brands. If you take care of a great brand, it’s forever.” Buffett also noted that: “No business has ever failed with happy customers.”

Would Warren Buffett buy Coca-Cola Amatil at $12 per share?

At today’s price of $12 per share, Coca-Cola Amatil’s share price is just 4% higher than it was two years ago. This temporary reprieve at a time when other companies are surging could represent a bargain as Coca-Cola Amatil continues to develop its product range and grow new markets. Warren Buffett recognises the long-term value of the parent company, saying back in 2013: “We own 400-million shares of Coca-Cola stock… and we wouldn’t think of selling a share”.

Untapped Asia

The quality brand combined with Coca-Cola Amatil’s distribution network means growth in Asia should follow the successes seen in other parts of the world. Indonesia, which boasts a massive 15% compounded annual GDP growth since 1998, is the prime target. Coca-Cola Amatil grew earnings a solid 15% out of Indonesia in 2013, targeting the expanding middle class with disposable income to burn.

Foolish takeaway

The company that offers “a beverage for every consumption occasion,” seems to be shifting from strength to strength. It may be slow growth, but with the addition of a steady dividend, Mr Market may be throwing investors a long-term bargain.

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