Diageo plc Ordinary 28,101/108p (DGE)

Company overview

Diageo is a major global manufacturer and distributor of spirits, wines and beers. Premium drinks included are Smirnoff vodka, Johnnie Walker Scotch whiskies, Guinness stout, Baileys Irish Cream, J&B Scotch whisky, Captain Morgan rum and Tanqueray gin. The group operates in 180 marketplaces, with a little over one third of business generated in each of Europe and North America respectively.

HL Comment (28 August 2008)

Distillers merged with Guinness in 1986 and then in 1997 Guinness and Grand Metropolitan merged to form Diageo, starting life as a broad based consumer goods group encompassing both food and drink. Since then, management has slowly disposed of the food related businesses (including Burger King) along with adding to its drinks portfolio. It now boasts that internationally, it champions nine of the world’s top twenty premium distilled spirit brands.

Recent full year results (28Aug08) saw the group delivering another robust set of figures, although the outlook comments provided some room for caution. The group enjoyed a rise of 9.0pc in adjusted operating profits to £2.3 billion, broadly in-line with analysts’ forecasts, whilst net sales increased by 7pc to £8.0 billion. Progress was underwritten by the group’s continuing expansion within the emerging market regions, with scotch sales in Latin America and beer sales in Africa both making significant contributions. However, with uncertainty over global economic growth remaining high, management decided to cut its target for underlying operating profit growth to between 7 and 9pc in the current fiscal year to June 2009 after meeting its target for this year. Nonetheless, long term confidence was expressed via a 5pc increase in the dividend payment and double digit growth in earnings per share is still expected over the current year.

Negative investor concerns focus on the strength of the global economy and the US in particular – still the group’s biggest market place – whilst elevated commodity costs also provide concern in relation to group costs. On the positive, overall progress is still being made, underwritten by emerging market growth, whilst a progressive dividend policy and a continuing share buy-back scheme provide additional support. Furthermore, the generally defensive nature of the business is set against the uncertain economic outlook. On balance, market consensus opinion currently denotes a strong hold.

All yield figures are variable and not guaranteed.

Fundamental Data

Year Ending	Revenue (m)	Profit Before Tax (m)	EPS (p)	P/E Ratio	PEG	EPS Growth (%)	Total Dividend	Dividend Yield
30-06-2008	10,643.00	2,093.00	58.26	15.20	1.40	11.00	34.35	3.70
30-06-2007	9,917.00	2,095.00	50.22	18.90	n/a	(18.00)	32.70	3.20
30-06-2006	9,704.00	2,146.00	67.20	13.50	0.20	69.00	31.10	3.40
30-06-2005	8,968.00	1,925.00	42.80	20.70	n/a	n/a	29.55	3.60
30-06-2004*	8,891.00	1,969.00	n/a	n/a	n/a	n/a	27.60	3.70

* Prior to 30th June 2005, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).