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Diageo’s coronavirus hangover

Full-year profits slumped after large impairment charges
Diageo’s coronavirus hangover

The shuttering of pubs, bars and restaurants during lockdown has left drinks giant Diageo (DGE) with a sore head.

IC TIP: Buy at 2,701p

Indeed, net sales for the 12 months to June tumbled by 8.7 per cent to £1.1bn – worse than consensus expectations of a 7.3 per cent decline. And the picture was even starker further down the income statement. Impairment charges of £1.3bn pertaining to the group’s businesses in India, Nigeria, Ethiopia and Korea sent statutory earnings plummeting.

Chief executive Ivan Menezes called the period a “year of two halves”. Before the pandemic hit, the group had seen a “good, consistent performance”. But for the full year, North America was the only region to report an improvement. Here, good growth pre-crisis was only partly erased by the closure of out-of-home drinking holes in the second half – leading to a 2 per cent increase in overall organic net sales.

Conversely, in the Asia-Pacific region, net organic sales plunged by 16 per cent. Meanwhile, Africa endured a 13 per cent drop – hit by lower beer and scotch sales in Nigeria, and alcohol bans in South Africa.

FactSet estimates put EPS for FY2021 at 117p, rising to 132p in FY2022.

DIAGEO (DGE)    
ORD PRICE:2,701pMARKET VALUE:£ 63.2bn
TOUCH:2,700-2,703p12-MONTH HIGH:3,625pLOW: 2,200p
DIVIDEND YIELD:2.6%PE RATIO:45
NET ASSET VALUE:289p*NET DEBT:157%
Year to 30 JunTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
201615.62.8689.559.2
201718.13.5610862.2
201818.43.7412265.3
201919.34.2413168.6
202017.702.0460.169.9
% change-8-52-54+2
Ex-div:13 Aug   
Payment:08 Oct   
*Includes intangible assets of £11.3m or 483p a share