Friday newspaper share tips: Not worth sinking more money into Diageo
Diageo was the focus of Friday’s newspaper share tips in The Times and The Telegraph.
Beverages
22,007.74
17:09 25/04/24
Diageo
2,759.00p
16:39 25/04/24
FTSE 100
8,078.86
17:14 25/04/24
FTSE 350
4,434.34
17:09 25/04/24
FTSE All-Share
4,387.94
16:49 25/04/24
The FTSE 100 drinks company said on Thursday that pre-tax profit edged up to £1.78bn in the six months ended 31 December from £1.64bn in the same period a year ago, as revenue slipped to £8.27bn from £8.72bn.
However, organic net sales were up 1.8%, beating analysts’ expectations for a 1.6% increase, while volumes grew 1%.
Diageo said adverse currency movements and the disposal of non-core assets reduced net sales by £400m and operating profit by £156m in the period.
The company announced a 22.6p interim dividend, up 5% on the previous year.
For the full year, the group expects volume growth to drive a stronger top line performance, with margin improving slightly and strong cash conversion continuing.
The Times’ Tempus said on the face of it, the numbers aren’t good and it caps off a difficult number of years since former chief executive Paul Walsh left.
“Diageo has been hit by the curb on giving spirits as gifts in China, the general slowdown in emerging markets and disappointing trading in North America, a third of the total.”
It said the company is doing its bit to turn things around in the US by sending its former CFO over to turn things around, which is expected to see sales rise by 8.5%.
While attempts to turn around the US are working, Tempus said the improvements are already priced in, and rated the company at ‘avoid for now’.
In The Telegraph, Questor had a slightly different view, rating the company at ‘hold’.
It said the slight rise in sales was enough to “appease investors who have become impatient after two years of lacklustre performance”.
But the column was concerned about the impact of currency conversions in growth markets including Brazil and Mexico.
It also said in emerging markets, the trend of growing disposable incomes being spent on spirits like Johnny Walker is reversing due to the China slowdown and the US dollar.
“The company is showing some signs of improvement, but not enough to warrant a rating of 21 times forecast earnings,” Questor said.
“The shares are no better than a hold for the income.”