Coca Cola (CCL) a Defensive Stock in a Volatile Market

Submitted by Share Trading on 14 February, 2008 - 17:04

Macquarie Research have released their views on Coca Cola (CCL). Upon yesterday's release of their FY07 results, Macquarie sees CCL as a defensive stock in a volatile market. They have an Outperform recommendation and see a potential of +18% on its share price in the next 12 months.

In a market that continues to disappoint investors, with constant sell downs despite performance, the search is on for that one gem that can last the market volatility and shine through as a safe haven. After yesterdays report Coca Cola Amatil (CCL) could be that stock.

CCL delivered a solid FY07 result which was 1.9% (or $6.9m) ahead of Macquarie Research Equities (MRE) forecast. The variance was primarily driven by strong operating earnings showing that the company was in ‘great shape, financially, managerially and operationally’. The company is also well positioned to respond to changes in economic conditions. Nevertheless management wasn’t willing to give formal profit guidance (this isn’t abnormal) but will instead provide a 1H08 trading and profit update at the AGM on 15 May. Management suggested the new product development pipeline is full (including Glaceau Vitaminwater), which in combination with other channel initiatives, will continue to drive positive mix.

One of the key factors to the result was the cost savings produced by the merging of the Australian and New Zealand beverage businesses. This contributed $10m in savings in FY07. Further profits and savings can be realised in FY08, via procurement initiatives, joint product development and the sharing of technical innovation. On these factors MRE has continued to rate the stock an outperform with a further 18% rise to come in the next twelve months. As a result the stock is well positioned as a defensive play particularly in the current market.