The Coca-Cola Company is the leading global manufacturer, retailer and marketer of non-alcoholic beverages. Photo: Mike Blake/Reuters
INTERNATIONAL - The Coca-Cola Company is the leading global manufacturer, retailer and marketer of non-alcoholic beverages.

It is ranked by Forbes as the sixth most valuable brand in the world with a brand value of approximately $60 billion (R876 billion).

It commands around half of the global carbonated soft drink market and over 10 000 Coca-Cola beverages are consumed per second.

The company primarily produces syrup concentrate, which is sold to various bottlers throughout the world who hold the rights to exclusive territories.

Sparkling beverages constitute the majority of its total volumes. Its key brands include Coca-Cola, Fanta, Sprite, Minute Maid, Powerade, Aquarius and Dasani.

Its flagship product, Coca-Cola, was invented in 1886 by American pharmacist John Stith Pemberton.

The drink was initially intended to be a medicinal tonic and during its early days the original recipe was derived from coca leaves that contained small amounts of cocaine.

The drug was removed from the beverage altogether in 1903.

Although Coca-Cola’s products are not consumer necessities, its popularity and low prices keep soft drinks on grocery lists even during recessions.

The defensive nature of its business means that Coca-Cola shares benefit from nervous investors.

With the US yield curve inverting and trade war tensions picking up, investors are fearful of a possible growth slowdown or recession.

Treasury bonds yield practically nothing after inflation, so low-volatility stocks with solid dividends like Coca-Cola become an attractive target for investors to allocate funds.

Coca-Cola offers investors a dividend yield of 2.9 percent and has raised its dividend for more than 50 consecutive years.

During its second quarter the company recorded organic sales growth of 6 percent and adjusted operating income growth of 14 percent.

While higher pricing and improved product mix did help organic sales growth, two-thirds of the increase was the result of stronger consumer demand for its products.

Momentum was particularly strong in emerging markets such as India and China where per capita consumption of soft drinks is still low.

Coca-Cola benefits from a strong global brand, solid financial position and industry-leading distribution network through its bottlers.

Although sugar tax, plastic pollution and growing health awareness present challenges, they also present opportunity.

Coca-Cola is transforming its business into a total beverage company by proactively investing in growing assets such as health, tea and premium hydration drinks. It also has the aspiration to expand in the growing coffee category.

The shares have gained nearly 15 percent this year, but are unfortunately trading at a ten percent premium to their own history at a price-to-earnings multiple of 33.

The premium is more likely a result of a currently overbought broader consumer defensive segment rather than significantly improved company-specific earnings growth expectations.

A price of around $47 (R701.24) per share more accurately reflects Coca-Cola’s growth prospects.

Frants Preis, CFA is a portfolio manager at VEGA Asset Management based in Pretoria.

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