The recent pull back on the ASX 200 sent Coca-Cola Amatil Ltd's (ASX: CCL) share price into a mini-correction and I believe this presents an exceptional opportunity to the long-term investor for three reasons
- International ties
Coca-Cola Amatil is a 29%-owned subsidiary of The Coca-Cola Company (NYSE: KO), meaning it has (and always will have) an exclusive licence to bottle and distribute Coca-Cola products within the Asia-Pacific region. Coca-Cola Amatil's operations are very stable as there is no competition for distribution rights within the area. Given the Coke brand already has a very high 'moat' (that's why Warren Buffett invested in The Coca-Cola Company), Coca-Cola Amatil can simply focus on its world-class distribution system and let the Coke brand sell itself.
- Business operations
Coca-Cola Amatil operates in six countries – Australia, New Zealand, Indonesia, PNG, Fiji and Samoa. In each country Coca-Cola Amatil has made Coke a household brand name using its industry-leading marketing and distribution channels. Coca-Cola Amatil purchases syrup from The Coca-Cola Company and uses its plant in Melbourne to bottle and distribute all beverages throughout its operating region. Recently, Coca-Cola Amatil announced a $500 million co-investment from The Coca-Cola Company to further develop its distribution channel in Indonesia, with the aim of reviving sales in that key growth region. This initiative, along with the recent launch of Coke Life and additional cost-out programs, should result in higher sales, lower costs and more efficient distribution channels to drive top-line results.
- Dividend yield
The fall in Coca-Cola Amatil's share price has increased its dividend yield; at current prices, Coca-Cola Amatil is offering a solid yield of approximately 5%, partially franked. This assumes minimal growth in EBITDA. A return to headline growth, which is expected to be around 5.4% over the next two years, should see dividends grow further, making Coca-Cola Amatil a blue-chip stock with significant dividend and capital growth potential.
Foolish takeaway
An investment in Coca-Cola Amatil carries moderate risk, but a purchase at current prices is reasonable for a long-term investor seeking steady income and capital growth. Management's initiatives to reinvest in Indonesia and introduce new product lines like Coke Life suggests the earnings downgrade cycle is over, leaving Coca-Cola Amatil poised for a re-rating.
