CorpCapital's Initial Outlook on Embotelladora Andina

On November 26, the Chilean broker CorpCapital initiated analyst coverage of Embotelladora Andina S.A. (NYSE: AKO.A), one of the largest Coca Cola bottlers in Latin America, setting their target price at Ch$1.700 per share, using a 10.8% WACC. The target price reflects an upside potential of 18.96%, and reflects a low outlook for growth in Chile, Brazil and Argentina, where the company operates. In addition, the price objective is set with a calculated 80% probability that Andina will be unable to repatriate capital from Argentina.

Over the last five years, Andina's average dividends have been 7%. With an expected 7.4% dividend for 2009, CorpCapital estimates a 26.36% return (18.96 + 7.4) over a 12 - 18 month period.

Andina has a strong position in the markets where the company operates, with a 71% market share in Chile, 66% in Brazil and 60% in Argentina.

According to the company's dividend policy, the average pay-out over the last five years has been approximately 7% per year. In percentages of annual earnings for 2005 - 2008, dividends have been 129%, 100%, 81% and 74%.

For 3Q'08, Andina reported EBITDA at Ch$36.3 billion (US$54.4 million), and net income at Ch$17.0 billion (US$25.5 million), which on an annualized basis reflects a P/E of 15.97, a book-to-market ratio of 0.27, and a 5.78% ROE.

The company's balance sheet as reported in the last interim statement, showed EV/EBITDA at 36.61, debt-to-equity at 0.79, and a quick ratio at 1.72.

Tecnically, the ADR formed a pennant on October 10, and is touching resistance level, with the close at 13.25 on Tuesday. A bullish break-out above 13.50 would signal a medium-term technical target at 19.25. However, in the current environment, and with a long-term trend which is still bearish, this seems unlikely. Still, a break-out on higher volume could trigger a rally in the short-term. A long position in the share should be entered with a stop-loss at the lower range of the pennant (12.25), which would limit the downside to -75%.

A downside break-out would set the new price target at 7.95 (12.5 - (0.36*12.5)).