A tale of two shorts

Livewire Exclusive

While some investors may sell short to offset other positions, Simon Shields from Monash Investors explains that they engage in shorting to make money. One of those shorts is betting against one of the best-known brands in the country, Coca-Cola Amatil. But why would you bet against Coke?

“We’ve seen carbonated soft drink volumes drop by as much as 5% p.a. over the last several years, and that’s a very bad trend for Coca Cola. They’ve tried to expand into water, that worked for a while, but the barriers to entry in water are pretty low.”

In the full video, Simon also explains why they recently covered their short position in Kogan, what motivated them to short the stock in the first place, and what it would take for them to buy the stock again.

Key points:

  • Younger consumers are less inclined to drink sugary drinks, while older consumers are reducing intake due to health concerns
  • Even the sugar-free drinks offered under Coca Cola brands are not trusted by consumers
  • Volumes of carbonated soft drinks have dropped by as much as 5% p.a. over the last few years
  • While CCL’s Indonesian business is now tracking reasonably well, it fails to offset the profit reduction witnessed in their core market of Australia.

Further insights

Monash Investors aims to achieve their objectives by investing in a small number of compelling stocks that offer considerable upside, and by shorting expensive stocks that are at risk of falling. Find out more here


Comments

Please sign in to comment on this wire.
Medium photedited3

Patrick Fresne

I sometimes get a sense that the core problem faced by Coca-Cola and comparable companies stems from the IT revolution over recent decades: with a wealth of information at the fingertips of the average person today, it seems that consumers are becoming increasingly conscious regarding what is in the food they eat. For example, you sometimes see people in the supermarket using smartphones to look up details of products on the shelf, such as nutritional information. For many decades, companies such as Coca-Cola have relied on slick advertising to sell nutritionally barren food and beverages, but thanks to the internet and smartphones, consumers today have the opportunity to think twice before loading sugary products into their trolleys. Health food companies appear to be the beneficiaries of this trend.

Avatar fallback

Ngaire

KGN also have more shares due to be released from escrow on the 20th August.

Medium c8e9ebbccb90d6d55b13b7ac2a21cbae1383028176

Graeme Holbeach

Patrick, I’d like to think that the internet has made us more knowledgeable about what we buy, but if this was the case, why would anyone (in Sydney anyway) ever buy bottled water? The internet will tell you that compared with tap water, the typical bottled water has less minerals, less screening for bugs, a lower ph (ie. more acidic) level, environmental problems with both plastic bottle manufacture and of course costs umpteen times as much to buy. Yet judging from the number of empty plastic bottles I come across in parks and washed up on the shoreline, sales are booming.

Medium screen shot 2015 12 10 at 12.07.47 pm

Fred Woollard

Bottled water doesn't just face competition issues, it also suffers from the inherent flaws in the product. Watch the ABC's "War on Waste" episode to see why bottled water is such a ridiculous and environmentally damaging product. If I could, I'd love to short CCL. https://iview.abc.net.au/show/war-on-waste

Medium photedited3

Patrick Fresne

Hi Graeme. This is just my impression, but I suspect that many consumers have been substituting the soft drinks for bottled water, rather than substituting bottled water for tap water. I recall reading some research from Ben Gilbert, an analyst from UBS, who suggested that the decline in carbonated soft drink sales over the past several years seems to be related to the increasing popularity of water and energy drinks. Certainly, this would explain the gradual shift by Coca Cola and Pepsi into the bottled water space.

See 2 more comments