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Share Centre share of the week: Diageo

Kit Klarenberg
Written By:
Kit Klarenberg

Ian Forrest, investment research analyst at The Share Centre, picks Diageo as share of the week.

“Diageo is a global alcoholic beverages group with a wide product range spanning whisky, vodka, beer, gin and liqueurs and it operates in 180 countries. The group owns many well-known global brands such as Johnnie Walker, Guinness, Smirnoff, Baileys and Captain Morgan.

“Full year figures in July showed net sales up 5% to £10.8bn with pre-tax profits up 7.4% to £2.9bn. These numbers were slightly below expectations, reflecting the downturn in emerging markets and a small decline in US sales. However, news last week  the group had sold its wine operations in the UK and US was well received by the market. As a result, the net proceeds will be used to reduce debt. Investors should acknowledge that, subsequently, the group is forecasting a return to growth this year.

“Diageo has a good geographical diversification with exposure to large, developed markets such as the US as well as fast-growing emerging markets in Asia and Africa.

“We currently recommend Diageo as a ‘buy’ for lower risk investors with a balanced portfolio. The company boasts strong brands including two which were recently featured in Interbrand’s list of the top 100 global brands across all sectors. Furthermore, we also like Diageo’s resilient sales in the US market, excellent long-term prospects in emerging markets, continued improvements in cost-cutting and a relatively good dividend yield.”