The Coca-Cola Amatil Ltd (ASX: CCL) share price is trading flat but that's a good outcome for the takeover target.
The CCL share price is holding at $12.94 during lunch time trade. That's a positive because the S&P/ASX 200 Index (Index:^AXJO) lost 0.2% of its value and the stock is still trading above the offer price.
Coca-Cola Amatil received a takeover offer worth $12.75 a share from its European counterparts late last year.
Bigger takeover offer for CCL waiting to pop
Many criticized the bid as being opportunistic and have called it a lowball offer as the group has been severely impacted by COVID‐19.
The market agrees and that explains why the stock is trading around 1.5% ahead of the offer price.
Citigroup believes a higher offer is forthcoming and that the next set of results could be a catalyst for a higher offer.
COVID recovery adds fizz
"Like most companies, Amatil had a difficult June '20 half (1H20), given lockdowns in key markets," said the broker.
"However, volumes have improved in Australia, NZ and PNG, while Indonesia is still in double-digit decline.
"With group volumes down ~5% in 2H20e, we estimate EBIT could be flat YoY, with lower costs the driver."
Coca-Cola Amatil could beat consensus
If Citigroup is right, Coca-Cola Amatil should deliver first half earnings per share (EPS) of 31.5 cents at the February reporting season.
This would imply a full year EPS of around 58 to 59 cents a share for 2021 (the group's financial year is the same as the calendar year). That would be substantially ahead of consensus forecasts of 52 cents a pop.
Cost control key to higher offer price
Citi's EPS forecast is driven in large part by good cost control. Coca-Cola Amatil moved quickly to cut costs during the onset of the pandemic and is estimated to have saved around $120 million in 2020.
The broker thinks these savings will be sustained this year, and if volumes recover, margins will expand at a greater pace.
How much more can CCL shareholders get?
Citi believes the next six weeks will be critical. When the group releases its results in mid-February, it will form the basis for the debate about the group's future earnings trajectory.
"The continued recovery of volume and earnings for Amatil increases the possibility that a higher bid emerges," explained the broker.
"We would still view an upside case as modest, perhaps a larger dividend could be retained by shareholders in February 2021.
"A bump of 25-50 cents per share is possible in our view."
