New analysis puts troubled Coca- Cola on the upswing

COCA- COLA Amatil shares have jumped after analysts at a leading investment bank delivered an upbeat forecast on the outlook for the beatendown soft drink company.

Citi analysts have upgraded their rating on the stock to “buy”, saying earnings at the group’s Australian business are likely to stabilise and it has potential for growth in Indonesia.

In a report for investors, Citi said it expected revenue at Coca- Cola Amatil’s Australian division to start growing again this financial year.

Among other factors, it cited an acceleration in new product launches and said the group’s push to target cafe and restaurant customers should provide a new channel for growth.

The upgrade comes less than a week after the soft drink company warned its earnings would be affected by a plan to invest $ 40 million upgrading technology, cutting prices and bolstering marketing.

Its shares slumped to their lowest level in almost a decade following the revelation – down almost 5 per cent last Thursday to $ 7.59.

Citi also noted the group’s Indonesian operations were better positioned for growth with first- class and highly automated production facilities.

“Over the past four years, the company has improved affordability substantially,” Citi analysts said after a tour of Coca- Cola Amatil’s operations in Indonesia.

Citi now has a target price on shares in the beverage company of $ 8.80.

Analysts at Deutsche Bank were less enthused, highlighting challenging conditions in the Indonesian market.

They have maintained the “hold” rating on Coca- Cola Amatil shares, 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 driven by the large Australian business,” Deutsche Bank said.

“We expect the cyclic weakness in Indonesia to eventually improve but the market is likely to remain very competitive outside of CSD ( carbonated soft drink).”