Coca Cola Amatil getting too fizzy

CCL has been gaining momentum over the past three months, as newly-elected Alison Watkins begins to sell her vision.

Source: Bloomberg

The mid-single-digit growth expectation from the half-year numbers and the fact CCL is estimated to have a 44 cent full year dividend (4.63% before the results) has seen Coca-Cola Amatil Ltd rocket up to near enough 52-week-highs, even as sales remain very muted.

The issue is earnings look like they will be unable to reach the estimates given. The Australian division is going to see modest growth at best, as Indonesia and Fiji look like needing more funds.

CCL needs to restore volume growth and under Watkin’s leadership this just may happen. However, she has an 18 month grace period to produce results. In the interim, I can’t see CCL delivering results that are supportive of the current share price. CCL continues to be disadvantaged by positioning in the major markets and its product mix is under major strategic review. Costs are also set to rise and earnings will be muted.

At a price of $10.60 a share, CCL’s yield is 4.1%. The ASX 200 net yield average is 4.35% and coupled with the fact CCL has appreciated 12% on next to no major news, I see CCL falling lower over the coming weeks.

Potential Trade

At $11, CCL is reaching former support levels. I see this as a strong resistant level fundamentally and technically. I would look to sell into strength here or on signs of weakness.

I see CCL being caught up in the possible downtrend coming the ASX’s way and falling further on the risk involved in the fundamentals. I would put a limit at $9.48, the technical support line and the price ahead of the half numbers. I would place a stop loss at $11.10 which would be a clear break above the resistance level.

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