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Date: May 16 2012
BEVERAGE group Coca-Cola Amatil has beefed up its credentials as a defensive play in the midst of global economic uncertainty and crashing share prices, saying yesterday it expected to generate 4-5 per cent growth in first-half profit.
Chief executive Terry Davis told shareholders at the annual meeting yesterday that momentum in its Australian business was improving after a weather-affected summer while its cost-cutting program, known as Project Zero, was driving productivity improvements across its operations.
The flagship Australian business expects to deliver improved volume and revenue in 2012, with volume growth of 1-2 per cent in the first half of the year after a solid Easter trading period.
''We are certainly hoping that the recent decision by the Reserve Bank to make a material cut to official interest rates will go some way to improving consumer confidence, and then to improve consumer spending,'' Mr Davis said.
Government financial reforms in Indonesia along with economic growth of more than 6 per cent were bolstering its soft drink arm in that country while its alcoholic beverage arm, taking in popular spirits brand Jim Beam, would post stronger earnings in this half.
Shares in CC Amatil got an immediate boost from the growth assessments. The stock climbed 3.3 per cent in early trade before closing up 14¢, or 1.1 per cent, at a record high of $12.87. In contrast, the broader S&P/ASX 200 Index fell 0.71 per cent after bigger falls across Europe and US sharemarkets over Monday night.
Constellation Capital Management analyst Brian Han said the shares now looked fully valued.
''In this environment it's treated as a secure, defensive stock and the valuation multiples now on the shares reflect that,'' he said. ''When Coca-Cola Amatil say they are going to grow, growth is very rare in this market and
I can see why investors are attracted to the stock.''
But Macquarie Group analyst Greg Dring said he had been looking for first-half profit guidance of 5-7 per cent for the first half, and there were other sources of income growth ''lurking in the business'' and potential improvements in its manufacturing systems also available. ''The other sources of income in the business would be the financial leverage from reinvesting the [$170 million] proceeds from the sale of the Pacific Beverages joint venture [back to partner SABMiller] - that was worth about 2 per cent growth in the first half,'' Mr Dring said. ''Backward vertical integration … was worth about 1 per cent [growth]. So non-trading type stuff that was worth 3 per cent, and they are going to do 4-5 per cent growth, so the trading business has only given them about 1 or 2 per cent growth, which is low.''
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