Davy Research |
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Diageo
DGE.L
Full year results due August 23rd; strengthening North America and emerging markets more than offsetting weakening Europe
17 August 2012
Barry Gallagher |
Richard O'Donovan |
| Closing Price: 1700p | Rating: | OUTPERFORM | Issued: | 11/01/10 |
Full year results due August 23rd; three-speed operating performance to continue
We expect Diageo to deliver 6.5% and 8.6% organic sales and operating profit growth respectively with net sales of £10,794m, operating profit of £3157m and EPS of 92.5p. Group net sales grew 7% for the first nine months.
We expect the group's three-speed operating performance to continue: double-digit growth from the emerging markets of Africa (beer), Latin America (spirits) and Asia (spirits); mid-single-digit growth in North America; and a flat performance at best in Europe.
Poor summer trading for Diageo's European beer business and tough conditions for spirits brands in Spain will be outweighed by the strengthening of the US spirits market and double-digit growth in emerging markets.
Looks on track for medium-term guidance of double-digit EPS growth; firepower for accretive deals
The large-cap European consumer names are now trading at a 60% premium to the market; Diageo is in line with these on 16.5x 2013F P/E and is now a market favourite after years of what was viewed as a sub-optimal performance relative to peers.
Diageo looks on track to achieve its medium-term guidance of double-digit EPS growth. We expect 8-9% organic profit growth and double-digit EPS growth for the next three years. In addition, Diageo still has the firepower for accretive deals; we believe the resolution of the Cuervo agreement is most likely in the short term. We reiterate our 'outperform' rating.