The Australian business remains under pressure in the supermarket price wars, leading to price deflation. This remains the core concern for both margins and growth.
There are three reasons I remain bearish on CCL:
Firstly, the strategic review is unlikely to yield any major efficiency in the interim, considering the strong performance of CCL in the past. Material cost reductions are unlikely because the company is already operationally efficient. Further declines here may actually impact revenue.
Secondly, CCL operates at an approximate 46% premium to its competitors. A price squeeze will remain a major detractor.
Finally, guidance remains broadly flat for the core Australian division, while its volatile Indonesian and Papua New Guinean markets have a growth profile of 8%. However, this is due to the alcoholic beverage division – something the core Australian market does not have exposure too.