Interactive Investor

ii view: Guinness owner Diageo in optimistic mood

A stable of over 200 drink brands and an enviable dividend growth track record. We assess prospects.

30th August 2023 11:39

by Keith Bowman from interactive investor

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Full-year results to 30 June

  • Net sales up 6.5% to £17.1 billion
  • Operating profit up 7% to £5.25 billion
  • Final dividend up 5% to 49.17p per share
  • Total full-year dividend up 5% to 80p per share
  • New share buyback programme of up to $1 billion

Chief executive Debra Crew said:

“These results demonstrate Diageo’s ability to consistently deliver resilient performance, even in challenging macro environments.

“Fiscal 24 marks the start of Diageo's next stage of evolution, and it is an incredible privilege to be leading the company through it. I believe total beverage alcohol is an attractive sector underpinned by strong consumer fundamentals, including population growth, increased spirits penetration, and resilience in premiumisation globally.”

ii round-up:

Diageo (LSE:DGE) is the world's largest premium spirits company with an estimated 30% share of the global premium spirits’ market. 

Around 81% of its sales come from spirits, with a further 14% from beer including Guinness and the balance of 5% largely from ready-to-drink or pre-mixed cocktails. 

For a round-up of these latest results announced on 1 August, please click here.

ii view:

Diageo was formed in 1997 when Grand Metropolitan and Guinness agreed a merger. Today it sells over 200 brands in more than 180 countries. Competing against the likes of Pernod Ricard SA (EURONEXT:RI) and Constellation Brands Inc Class A (NYSE:STZ), Diageo brands include Johnnie Walker whiskey, Smirnoff vodka, Gordon’s and Tanqueray gin, Captain Morgan’s rum, Don Julio tequila, and Baileys liqueur. The FTSE 100 company also owns a 34% stake in Moët Hennessy and 55% of United Spirits in India.

The US remains its biggest generator of operating profit at just over a half, with Diageo now moving to report its results in US dollars. Near-term focuses under its new chief executive include bolder and faster innovation and stepping up operational excellence while pushing its scotch, tequila, and Guinness categories.  

For investors, management caution regarding ongoing geopolitical and macroeconomic uncertainties should not be ignored. Volumes declined 7.4% over the year, likely hindered by the cost-of-living crisis and tough comparatives from the pandemic, cost pressures such as those for energy persist, while ethical concerns regarding alcoholic consumption may deter some investors. 

On the upside, its strength and diversity of brands enabled it to hold or gain market share in more than 70% of its overall markets in the past year, and rising costs have been offset by product price increases. A focus on cost savings also persists, while shareholder returns remain a focus, with its dividend payment rising for more than 15 consecutive years, leaving its shares sat on an estimated future dividend yield of around 2.5%.   

For now, and while some caution appears sensible, this drinks giant looks to remain worthy of its place in many long-term focused portfolios.  

Positives: 

  • Stable of diverse and well-known drink brands
  • Ongoing share buyback programme

Negatives:

  • Uncertain economic outlook
  • Exposure to currency risk

The average rating of stock market analysts:

Strong hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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