Coca-Cola Amatil gets extra sparkle
SHARES in Coca-Cola Amatil have jumped after Citi analysts upgraded the company to a buy rating, forecasting a stabilisation in earnings from its Australian business and growth potential in Indonesia.
Citi expects revenue growth from Coca-Cola’s Australia division to return in the 2018 financial year, citing an acceleration in new product launches, water pricing changes and the targeting of cafe and restaurant customers as a new channel for growth.
The upgrade comes less than a week after the soft drinks company warned its earnings would be impacted by $40 million of incremental spending aimed at driving growth in its Australian business.
The news drove Coca-Cola shares to their lowest level in almost a decade, down 5 per cent to $7.59 last Thursday.
But Coca-Cola shares were up 5 cents, or 0.65 per cent, at $7.69 at 1pm yesterday.
Citi also noted that Indonesia was better positioned for growth with first-class and highly automated production facilities and following a shift in using third party distributors, which improves the customer reach.
“Over the past four years, the company has improved affordability substantially,” the broker said yesterday following a Coca-Cola investor tour of operations in Indonesia.
The broker upgraded Coca-Cola to a buy rating, with a target price of $8.80 per share and a dividend yield of 6 per cent.
Citi also expects the stabilisation of Coca-Cola’s Australian revenue in the first-half of the 2018 financial year to be a catalyst for the stock to rerate higher.
“We believe the consensus downgrade cycle is done and expect its valuation appeal and dividend yield to provide upside, particularly as Australian revenue growth returns in FY18 (estimated).”
Deutsche Bank was less enthused, highlighting challeng- ing conditions in the Indonesia market, and maintained its hold rating on Coca-Cola with a target price of $7.80.
“While Indonesia is a meaningful part of the valuation implied by the market, we believe medium-term share price performance will be driv- en by the large Australian business,” Deutsche Bank said.
“We expect the cyclical weakness in Indonesia to eventually improve but the market is likely to remain very competitive outside of CSD (carbonated soft drink).”