jp-coca cola amatil-continuing the high value growth path-100218.pdf

Australia Equity Research 18 February 2010 CORRECTED NOTE Coca-Cola Amatil Overweight Previous: Neutral CCL.AX, CCL AU Continuing the High Value Growth Path Price: A$10.57 Price Target: A$11.20 Food 2) Greater earnings security than its Food and 3) Share price weakness following the result. We view the correction as presenting a reasonably attractive entry price for CCL. 2 Australia Equity Research 18 February 2010 Stuart Jackson, CFA (61-2) 9220-1601 stuart.a.jacksonjpmorgan.com CORRECTED NOTE Overview of the Result CCL reported FY09 NPAT of A$449m, in line with its recent guidance of high single digit EBIT and NPAT growth in 2H09, but marginally below our forecast. However, the miss was purely due to a higher than expected effective tax rate in the period. At the EBIT line, the results from the beverages business were in line with our forecast, while the Food Services division produced a better than expected profit. Marginally lower revenue in each business was offset by lower than expected unit COGS to producer better than expected margins. Cash flow was significantly stronger beating our estimate by A$300m as a result of a working capital run down resulting from stronger sales late in the year, and an underlying reduction in working capital days as a result of the realisation of benefits from CCL's new IT system, OAisys. This resulted in net debt being A$400m lower than expected. Management noted that net debt will rise in CY10 as a result of a reversal of the temporary component of the working capital reduction in late FY09. Overall, we believe that the result was a strong one with the management increasingly confident about its growth profile due to a long list of reinvestment opportunities stretching through 2014. However, the market was looking for a significant beat given comments about the strength of the market in December. With the results falling in line with consensus estimates, the stock underperformed the market by almost 5% and is likely to be weak in the near term. We have revised our normalised EPS forecasts for FY10 and FY11 by +2.4% and +2.6% respectively. Our valuation has increased to A$10.70 per share and we have raised our 31 December 2010 price target to A$11.20. We have upgraded our recommendation to Overweight, reiterating CCL as our preferred exposure in the Australian Food lower earnings certainty of FGL (discussed in the next point); and the sizable recovery factored into our earnings forecasts for FGL in CY10 and beyond, regarding which we have a low level of confidence. 2. Greater earnings security than its Food and (2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Important Disclosures Client of the Firm: Coca-Cola Amatil is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company investment banking services, non-investment banking securities-related services and non-securities-related services. Foster's Group is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company non- investment banking securities-related services. Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation for investment banking services from Coca-Cola Amatil. Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment banking services in the next three months from Coca-Cola Amatil. Non-Investment Banking Compensation: JPMSI has received compensation in the past 12 months for products or services other than investment banking from Coca-Cola Amatil, Foster's Group. An affiliate of JPMSI has received compensation in the past 12 months for products or services other than investment banking from Coca-Cola Amatil, Foster's Group. 0 6 12 18 Price(A$) Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Coca-Cola Amatil (CCL.AX) Price Chart UW A$8.85 UW A$9.5UW A$9.5N A$8.8N A$8.75N A$10.2 UW A$7.5UW A$8.3N A$9.5N A$9.5N A$8.6 UW A$8.2 N A$8.5N A$9.3OW A$11. W A$6.8UW A$7.8N A$9.4 N A$9.9N A$8.9UW A$8.8UW A$8.5 N A$8.85 N A$10.7 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight. Date Rating Share Price (A$) Price Target (A$) 08-Nov-06 UW 7.00 6.80 15-Feb-07 UW 7.95 7.50 27-Jun-07 UW 9.27 7.80 06-Jul-07 UW 9.19 8.30 09-Aug-07 UW 9.04 8.85 12-Oct-07 N 9.15 9.40 05-Dec-07 N 10.12 9.50 07-Dec-07 UW 10.53 9.50 04-Jan-08 N 9.72 9.90 13-Feb-08 N 8.79 9.50 11-Mar-08 UW 9.57 9.50 13-May-08 N 7.90 8.90 14-Aug-08 N 7.82 8.60 20-Aug-08 N 7.94 8.80 24-Sep-08 UW 9.05 8.80 14-Nov-08 UW 7.95 8.20 24-Feb-09 UW 8.92 8.50 16-Mar-09 N 8.15 8.50 07-May-09 N 9.00 8.75 02-Jul-09 N 8.62 8.85 13-Aug-09 N 9.25 9.30 20-Oct-09 N 10.44 10.20 04-Nov-09 N 10.28 10.70 17-Feb-10 OW 10.84 11.20 19 Australia Equity Research 18 February 2010 Stuart Jackson, CFA (61-2) 9220-1601 stuart.a.jacksonjpmorgan.com CORRECTED NOTE 0 1 2 3 4 5 6 7 8 9 10 11 Price(A$) Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Foster's Group (FGL.AX) Price Chart N A$7 N A$7N A$5.8UW A$5.6N A$5.5 OW A$7 N A$6.75N A$6N A$5.5UW A$5.6 UW A$5.1UW A$5.4 N A$5.7 OW A$7.25OW A$6.9 N A$6.65N A$6.25N A$5.7 N A$5.6 UW A$5.2UW A$5.2N A$5.9 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight. Date Rating Share Price (A$) Price Target (A$) 07-Feb-07 OW 7.05 7.25 23-Jul-07 OW 6.27 6.90 30-Aug-07 OW 6.37 7.00 10-Oct-07 N 6.90 7.00 29-Oct-07 N 6.27 6.65 04-Dec-07 N 6.42 6.75 02-Jan-08 N 6.55 7.00 19-Feb-08 N 5.86 6.25 10-Mar-08 N 5.31 6.00 08-Jul-08 N 4.75 5.70 24-Jul-08 N 4.87 5.50 26-Aug-08 N 5.33 5.80 28-Oct-08 N 5.08 5.60 06-Nov-08 UW 5.85 5.60 03-Mar-09 UW 5.61 5.20 24-Mar-09 UW 5.09 5.10 02-Sep-09 UW 5.28 5.20 08-Oct-09 UW 5.45 5.40 06-Nov-09 UW 5.36 5.60 26-Nov-09 N 5.58 5.90 09-Feb-10 N 5.53 5.70 16-Feb-10 N 5.56 5.50 0 1 2 3 4 Price(A$) Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Goodman Fielder Limited (GFF.AX) Price Chart UW A$2UW A$2.5 N A$2.2N A$2OW A$1.55 UW A$2 UW A$2.2 UW A$2.3UW A$2.2N A$2.25OW A$1.53N A$1.6N A$1.6 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Break in coverage Jun 17, 2003 - Oct 13, 2006. This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight. Date Rating Share Price (A$) Price Target (A$) 13-Oct-06 UW 2.03 2.00 27-Feb-07 UW 2.38 2.20 01-Mar-07 UW 2.26 2.00 01-Mar-07 UW 2.26 2.20 05-Jul-07 UW 2.40 2.30 20-Aug-07 UW 2.28 2.50 04-Sep-07 UW 2.57 2.40 29-Oct-07 UW 2.11 2.20 19-Nov-07 N 1.98 2.20 08-Jan-08 N 1.83 2.10 01-May-08 N 1.79 2.25 11-Jul-08 N 1.40 2.00 14-Aug-08 N 1.51 1.80 05-Dec-08 OW 1.33 1.53 25-Feb-09 OW 1.40 1.55 14-Aug-09 N 1.52 1.60 10-Dec-09 N 1.61 1.60 Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe. Neutral Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe. Underweight Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe. The analyst or analysts teams coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe. 20 Australia Equity Research 18 February 2010 Stuart Jackson, CFA (61-2) 9220-1601 stuart.a.jacksonjpmorgan.com CORRECTED NOTE Coverage Universe: Stuart Jackson, CFA: AWB Limited (AWB.AX), Aristocrat Leisure Limited (ALL.AX), Australian Vintage Limited (AVG.AX), Coca-Cola Amatil (CCL.AX), Crown Limited (CWN.AX), Foster's Group (FGL.AX), Goodman Fielder Limited (GFF.AX), GrainCorp Ltd (GNC.AX), Tabcorp Holdings (TAH.AX), Tatts Group Limited (TTS.AX) J.P. Morgan Equity Research Ratings Distribution, as of December 31, 2009 Overweight (buy) Neutral (hold) Underweight (sell) JPM Global Equity Research Coverage 42% 44% 14% IB clients* 58% 57% 42% JPMSI Equity Research Coverage 41% 49% 10% IB clients* 78% 73% 57% *Percentage of investment banking clients in each rating category. 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