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Diageo has scotched falling growth in key areas. Here's how

The group's biggest brands have led the charge, while the North American spirits business also returned to growth
July 28, 2016

The brands categorised by international distiller Diageo (DGE) as its 'global giants' have shown their muscle. The six-strong grouping accounts for 40 per cent of net sales and grew at 3 per cent this term. Chief financial officer Kathryn Mikells said its Smirnoff vodka and Captain Morgan rum drinks have both returned to growth this financial year, with Baileys performing particularly well in Europe and reserve whisky brands such as Johnnie Walker Gold proving popular.

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The US spirits business also did well thanks to a strong second half during which bourbon, scotch and tequila went down well. Ms Mikells said the company had moved to a replenishment model, meaning customers restock at pre-set levels, which helps prevent costly overstocking at Diageo's end. The US accounts for roughly a third of net sales and Ms Mikells has confidence that this part of the group will continue to grow. This is likely a key plank in her proclamation that the group is confident it will achieve its objective of mid-single-digit top-line growth in the next three years, as well as 100 basis points of organic operating margin gains by the end of FY2019.

Unfortunately, the emerging markets side of the business didn't perform quite so well. Weakness in China, where organic volumes fell 5 per cent, pushed net sales in the Asia-Pacific region as a whole down 6 per cent to under £2.1bn. And Nigeria's 11 per cent drop in organic volumes - the only dip on that continent - pushed net sales across Africa down 1 per cent to £1.4bn.

The company has also continued its effort to shore up the dividend cover. The dividend only grew 5 per cent this time to keep cover - at 1.5 times FY2015 earnings - close to the usual range of 1.8-2.2 times.

Analysts at Credit Suisse expect adjusted pre-tax profits of £3.51bn in the year to June 2017 leading to adjusted EPS of 107.6p, compared with £2.9bn and 89p in FY2015.

DIAGEO (DGE)
ORD PRICE:2,147pMARKET VALUE:£54.05bn
TOUCH:2,146-2,147p12-MONTH HIGH:2,186pLOW: 1,593p
DIVIDEND YIELD:2.8%PE RATIO:24
NET ASSET VALUE:339p*NET DEBT:85%

Year to 30 JunTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201210.83.1278.243.5
201311.33.0698.047.4
201410.32.7193.051.7
201510.82.9395.056.4
201610.52.8689.559.2
% change-3-3-6+5

Ex-div: 11 Aug

Payment: 6 Oct

*Includes intangible assets of £12.37bn, or 491p a share