There are plenty of things to like about Coca-Cola Amatil Limited (ASX: CCL) shares, but I’m not in a rush to buy. Here are a few reasons why.

About Coca-Cola Amatil

Coca-Cola Amatil is the Australian distributor and rights holder to the famous Coca-Cola brand (which is owned by the US parent Coca-Cola Company). Coca-Cola Amatil started life in 1904 as the British Tobacco Company. The ‘Amatil’ in its name came in 1977 when it was renamed as Allied Manufacturing and Trade Industries Limited (AMATIL).

What I Like About It

There are a few positives that stand out when looking at Coca-Cola Amatil.

First of all, the return on equity (ROE) is high – between 25% and 30% over the last two years – which sets it apart from other food and beverage companies like Treasury Wine Estates Ltd (ASX: TWE) or even Woolworths Group Ltd (ASX: WOW). It suggests Coca-Cola can invest its funds more effectively in value-adding projects.

The dividends are also worth noting with a current dividend yield of 4.6%. While this also trumps some of the competitors, Coca-Cola Amatil dividends are not fully franked. As of the most recent dividend, they are only 50% franked. To learn more about what that could mean for you, have a look at the video below.

Why I’m Not Buying

Despite the positives, there are some downsides to Coca-Cola Amatil shares.

Although past performance is not a reliable indicator of future performance, you can’t help but notice that past performance is not exactly inspiring – up 8% over the last five years.

Since around 2015, the company’s book value and net tangible assets (NTA) have been decreasing which would lead an asset valuation model to suggest a declining value for the company.

Debt is also high. The debt-to-equity ratio in 2018 was about 155%. While they easily have the revenue to cover the interest payments right now, debt adds risk and, in most cases, I would take a company with lower debt over a comparable company with high debt.

Comparison

Finally, when I look for a company to invest in, I always look at its competitors. While Woolworths is a very different company, I would still consider it a competitor as they produce their own range of products similar to Coca-Cola Amatil’s products.

When I compare the two, I can’t justify an investment in Coca-Cola. Woolworths has a far more attractive debt structure with a debt-to-equity ratio of around 26%. Woolworths pays a fully-franked dividend, and both its book value and NTA remain largely in line with where they were five years ago. It’s a very similar story if you compare Coca-Cola to Treasury Wine Estates.

While I like some aspects of Coca-Cola Amatil, I won’t be investing any time soon.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.