Coca-Cola Amatil: Interim result 2012
Recommendation
In the half year ended 30 June 2012, Coca-Cola Amatil increased trading revenue by 8.9% to $2.4bn, aided by volume growth of 5.5%. The key Non-Alcoholic Beverages business posted a 7.4% increase in sales, to $2.1bn, while the Alcohol, Food & Services business increased sales by 19.3% to $329m.
But fairly strong revenue growth didn't translate into particularly strong growth in earnings before interest and tax (EBIT), which rose a lesser 4.1% to $402m. The still small Indonesia and PNG beverages business contributed $27m of this total, up 19.3% on the prior corresponding period, while the struggling New Zealand and Fiji business saw EBIT fall 14.2% to $31m. The Australian beverages business, by far the company's most valuable asset, experienced a 4.9% increase in EBIT to $295m. Alcohol, Food and Services achieved only 3.7% growth in EBIT, to $50m.
Half year to | 30 Jun 12 | 01 Jul 11 | Change (%) |
---|---|---|---|
Sales revenue ($m) | 2,408 | 2,211 | 9 |
EBIT ($m) | 402 | 386 | 4 |
Underlying net profit ($m) | 247 | 234 | 6 |
EPS (c) | 32.5 | 30.9 | 5 |
DPS (c) | 24 | 22 | 9 |
Franking (%) | 100 | 100 |
Queensland and NSW experienced their wettest summer in more than 50 years, crimping sales growth in these important markets and partly explaining the margin shrinkage. Though the exact details aren't divulged, the half-year consisted of a slow, rain-affected first quarter and a much-improved second quarter. Volume growth in the second quarter was boosted by increased sales of the flagship Coca-Cola product and the launch of Powerade Zero in Australia (which, we can't ignore the opportunity to point out, is an energy drink that provides barely enough energy in a 600ml bottle for a 150 metre walk). While the last quarter was strong, management cited tougher conditions the past few months with growth moderating.
Directors declared a fully franked interim dividend of 24 cents, up from 22 cents last year. In other news, the company announced a joint venture with Casella Group (makers of Yellow Tail wine) to build a brewery in Griffith, NSW. This will allow Amatil to re-enter the premium beer market toward the end of 2013, immediately after its non-compete clause with SABMiller expires. The initial investment is small ($46m) but hints at grander ambitions.
Our main concern with Coca-Cola Amatil is the stock price. The stock is up 14% since 24 Feb 12 (Hold - $12.11) and it's trading at 20 times 2011 earnings and 18-19 times forecast earnings for 2012. We're not certain it'll grow fast enough to justify this price tag, but this is a high quality business and those that own it can HOLD for now.