Friday tips round-up: Diageo, Mondi
Ex-Diageo chief Paul Walsh timed his exit in July of 2013 near perfectly. Since then emerging markets went into reverse with the depreciation in local currencies bringing great pressure to bear on consumers in those countries. For Diageo what matters is the fact that it makes it wares more expensive. In parallel, Chinese authorities’ anti-corruption drive impacted negatively on it sales while consumers in the developed world are increasingly more discerning of what they buy.
Thus, for example, the company’s volumes dropped 3.5% in the first quarter. On top of that, it is estimated that it will take a £95m currency hit this financial year. “Diageo is exactly the sort of consumer-led stock which is shunned in this type of market,” says The Times’s Tempus. Since the recovery will not come until 2015 at the earliest, “avoid for now”, Tempus adds.
Packaging manufacturer Mondi is doing quite well given the circumstances. Half its business is in the Eurozone and about 15% of that, no less, in Russia. Even so, while the company’s third-quarter trading statement included a warning on the effects of possible weakness in the single currency area demand in fact held up well. As well, the weak rouble will hit reported profits.
On a more positive note, the firm will see a benefit from recent price rises of between 5% and 10%. The company has also been spending, building two new plants, one in Russia and the other in the Czech Republic. At 12 times’ earnings, and with a 3.5% dividend yield, it’s too early to pile back in, even if management is doing all the right things. Hold, Tempus writes.