ii view:Diageo aided by scotch and gin

by Keith Bowman from interactive investor |

Alcoholic drinks big-hitter Diageo raises sales in all its key markets. 

Full-year results to 30 June 2019

  • Net sales reported sales, up 5.8% to £12.9 billion
  • Reported operating profit up 9.5% to £4.0 billion
  • Full-year dividend up 5% to 68.57p per share

Chief executive Ivan Menezes said:

"Diageo has delivered another year of strong performance. Organic volume and net sales growth was broad based across regions and categories, with new product innovation being a strong contributor. We expanded organic operating margin ahead of our guidance and increased investment behind our brands ahead of organic net sales growth."

ii round-up:

Diageo (LSE:DGE) makes branded premium spirits and sells them in more than 180 countries. It also produces and sells beer and wine. Brands include Johnnie Walker scotch, Smirnoff vodka, Captain Morgan rum, Baileys Irish Cream, and Guinness stout.

It also owns 34% of champagne and cognac maker Moet Hennessy, a subsidiary of French luxury-goods maker LVMH Moet Hennessy Louis Vuitton (EURONEXT:MC), and a near-55% stake in India's United Spirits.

Scotch represents 25% of group net sales, Vodka 11% and Beer 16%. On a geographical basis, North America is the biggest market.  

Full-year results again demonstrated good progress. North America net sales grew 5%, and all three key markets generated some growth. Scotch gained market share, helped by new products. Sales in Asia rose by 9% with China sales up 19% driven by strong performance in both Chinese white spirits and scotch. Sales of gin proved a feature for its European and UK business. 

Diageo also outlined plans to return a further £4.5 billion to shareholders via share buy-backs over fiscal years 2020 to 2022.

ii view:

The company's stable of diverse and well-known brands has helped Diageo catch the eye of many investors. A track record of 13 consecutive years of increasing dividend payments also works in its favour. A management focus on product innovation and productivity initiatives add to the investment case, complimented by emerging market demand for scotch and exposure to thirsty drinkers in China and India. 

That said, with the share price up a little under 20% year to date, and the valuation looking full compared to the 10-year average – a one-year forward price earnings ratio of over 25 compared to under 20 – the shares may be up with events for now. 

Positives: 

  • Owns diverse and well-known drink brands
  • Returning cash to shareholders

Negatives:

  • US trade war with Europe could include scotch 
  • Currency movements can hinder performance

The average rating of stock market analysts:

Weak buy

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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