Sign up United Kingdom
Proactive Investors - Run By Investors For Investors

Diageo ready to hit the accelerator after years of sluggish growth, Goldman Sachs believes

"Diageo’s shares are up 2% ytd in euros, outperforming European Staples by 3 pp; however, it has underperformed its spirits peers by 61% since 2015, having failed to keep pace with their accelerating sales growth"
A glass of scotch
Goldman Sachs expects North America and Asia Pacific to drive the growth acceleration

Goldman Sachs has upgraded Diageo plc (LON:DGE) as it believes the global drinks brands owner’s organic sales growth is about to accelerate.

The US investment bank said the acquisition of “super premium” tequila brand Casamigos will boost sales growth in the US while headwinds in the Indian market should abate.

READ: Gin and Tequila sales boost Diageo's first-half earnings

Goldman Sachs has increased its earnings per share (EPS) forecasts for the financial year just ended and the next two by 1%, 6%, and 7% respectively, prompting the upgrade to ‘buy’ from ‘neutral’.

“We expect evidence of accelerating organic sales growth and margin delivery to drive outperformance,” the bank said.

The shares were up 1.5% after the upgrade at 2,826p, comfortably below the bank’s price target of 3,160p.

The owner of the Johnny Walker and Smirnoff labels is set to release its fiscal 2018 results on July 26; Goldman Sachs said it expects 4.1% year-on-year organic sales growth and EPS of 119p.

Goldman Sachs reckons aged spirits – cognac, tequila, whisky and the like – will do better than unaged spirits in terms of driving “returns expansion over the next decade”.

Only 39% of Diageo’s sales come from aged spirits, compared to 65% for Remy Martin and 46% for Pernod, but it is comfortably ahead of Campari’s 17%, while if its stake is Moet-Hennessy is included it would push the exposure up to 44%.

Stripping out Diageo’s brewing interests – the company owns the Guinness brand – would lift the proportion of sales accounted for by aged spirits up to 52%.

Goldman Sachs expects the growth of spirit sales to accelerate, having “meaningfully slowed” between 2015 and 2017.

View full DGE profile View Profile

Diageo plc Timeline

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use