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Diageo toasts emerging markets

TIP UPDATE: Emerging markets are the star for Diageo, but mature markets are recovering too
August 31, 2010

Emerging markets drinkers' growing taste for a wee dram offset a stuttering recovery in mature markets to help Diageo deliver 13 per cent year-on-year underlying earnings growth.

IC TIP: Buy at 1050p

Key whisky brand Johnnie Walker saw volumes climb 22 per cent in its international business - which covers Latin America, Africa and the Middle East - as heavy investment in marketing paid off, lifting the region's operating profit by a quarter. In fact, the world's most popular scotch whisky was the star performer in most regions, including the US where volumes climbed 5 per cent, even as most of its priority spirits brands saw volumes drop as consumers there continued to trade down.

However, the overall performance masks the improvement seen in the critical US market as the year progressed, led by the return to growth of the super premium segment. True, overall annual volumes there fell 2 per cent. But that reflected a swing back into positive territory in the second half after an extremely challenging first half that saw a decline of 4 per cent. It was much the same story in Europe, led by double-digit volume and sales growth in Russia.

Broker Evolution expects underlying full-year pre-tax profits of £2.43bn and EPS of 72p a share (from £2.19bn and 64p in 2009).

DIAGEO (DGE)

ORD PRICE:1,050pMARKET VALUE:£26.3bn
TOUCH:1,049-1,050p12-MONTH HIGH:1,176pLOW: 931p 
DIVIDEND YIELD:3.6%PE RATIO:16
NET ASSET VALUE:160p*NET DEBT:145%

Year to 30 JunTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20067.262.1567.231.1
20077.482.1050.232.7
20088.092.0959.334.4
20099.311.9964.536.1
20109.782.2466.338.1
% change+5+13+3+6

Ex-div: 8 Sep

Payment: 19 Oct

*Includes intangible assets of £6.7bn, or 268p a share

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