Has Coca Cola Amatil lost its fizz?

Coca-Cola Amatil (CCL) recently released more information on its proposed de-merger of its European business to create a new company, Coca-Cola Beverages (CCB), to be listed on the London Stock Exchange allowing the Australian listed company to focus on the Asian businesses. As part of the proposal, CCL and CCB will buy from The Coca-Cola Company, the U.S. parent company, the bottling operations in South Korea and North/Central Italy respectively.

Under the proposal, shares in CCB would be distributed on a one-for-one basis to existing holders of ordinary shares in CCL. A clearing mechanism is being provided for CCA shareholders who wish to sell some or all of the CCB shares they receive.

Not surprisingly the turmoil in Asia is impacting profitability, particularly in Indonesia and the Philippines. Taking into consideration the current economic difficulties and social unrest in Indonesia, it was surprising that first quarter sales were about the same as the previous year while the Philippines' business has actually increased sales growth by over 30% compared with the previous period.

It's clear though that the full impact of the currency crisis in Asia is yet to be seen. The biggest potential problem for CCL is the longer-term implications of the devaluation of the peso (currency of the Philippines) and the rupiah (the currency of Indonesia).

This was one of the main reasons that many analysts have downgraded the stock in recent times. If the situation deteriorates any further, economic growth, consumer confidence and retail sales will all suffer and will undoubtedly hit group profitability. Until the situation in Asia consolidates and stabilises, we believe there is more certain value elsewhere.