Rebottling Coca Cola

  • While the Australian Share-market has been trending higher over the past two years, one of Australia’s leading blue chip stocks has been trending lower, and may not have finished falling. Coca-Cola Amatil (CCL) has 764 million shares on issue for a market capitalisation of $6.57 billion placing it in the ASX 50 index.
XAO now rebounding.

XAO now rebounding.

Still going lower.

Still going lower.

Iconic status confers no immunity against a fall in the share-price. In the last month $9 support has failed to hold, with continuation of the down-trend. In percentage terms it is a 46.75% decline from a high of $15.40 to a low of $8.20. The metrics from Commsec and Yahoo Finance are indicative of the recent decline in profitability.

  • Total shareholder return over the past year has been -29.8%, over 3 years -7%.
  • The Earnings growth for the next 2 years is projected to be -10.2% with dividends shrinking 11.8%.
  • Debt/Equity ratio has sky-rocketed to 179.3 %
  • It still remains however a favoured income stock with a Dividend Yield of 5.7%, 75% franked.
  • The present P/E ratio is 15.97.
  • EBITDA is $1,084.8 billion.

When the fall in the share-price appeared to have stabilised, and found support at $9, the writer opened a small long position believing the shares had been over-sold. Share-price fall below $9 triggered the writer’s stop/loss position however.

The company announcement today provides some guidance for share-holders.

Click to access 42t7wrnjhm3plj.pdf

The closure of the Bayswater, Melbourne, manufacturing facility over the next twelve months and transfer of operations to larger premises is however expected to enable a reduction of 57 permanent positions and savings in excess of $100 million. There should be no disruption to production, or loss of patronage. One would hope that this would enable the company to pay-down its excessive debt position.

This price weakness could be an opportune time to accumulate CCL stock, but with the share-price running counter to the recovering All Ordinaries Index, it would seem to be less risky to exit, and wait for a definite rebound in the price before re-entering.

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