Diageo PLC

Diageo PLC (LON: DGE) is a London, United Kingdom-headquartered global leader in beverage alcohol with an outstanding collection of brands across spirits and beer, which aspires to become one of the best performing, most trusted and respected consumer products companies in the world.

Financial Highlights (for the year ended 30 June 2019)
Reported net sales grew by 5.8% on a reported basis to £12.9 billion, driven by organic growth and favourable exchange rate, while total sales were £19.3 billion. All regions reported organic net sales growth and the group delivered 6.1% organic net sales growth, as it reported organic volume growth of 2.3% and 3.8% positive price/mix. Although partially offset by cost inflation and higher marketing investment, improved price/mix and productivity benefits from everyday cost efficiencies helped the company in achieving organic operating margin improvement of 83 basis points and reported operating margin increased by 107 basis points. Basic EPS increased by 7% or 9.0 pence to 130.7 pence. Free cash flow continued to be strong at £2.6 billion, which represented an increase of £85 million, while net cash from operating activities was £3.2 billion, an increase of £164 million as compared to the last year. Return on average invested capital increased by 80 basis points to 15.1% and bringing the full-year dividend to 68.57 pence per share.

Share Price Performance

Daily Chart as at December-04-19, before the market closed (Source: Thomson Reuters)

On 4th December 2019, Diageo PLC shares were trading at GBX 3,086.50 at the time of writing before the market close (at 9:44 AM GMT), down by 0.99% against the previous day closing price. Stock's 52 weeks High and Low are GBX 3,633.50/GBX 2,688.50. The company's stock beta stood at 0.68, reflecting the lower volatility as compared to the benchmark index.

The shares of the company have delivered a positive return of 8.39 per cent in the last one year. On Year to Date basis, the company’s stock has given investors 10.43 per cent of a positive return.

Conclusion
The change in methodology (organic non-GAAP measures) will substantially simplify the company’s internal reporting processes. In the medium-term, organic operating profit is expected to grow roughly one percentage point ahead of organic net sales, which is expected to grow towards the mid-point of the 4% to 6% range.Driven by the increasing penetration of spirits around the world and population and income growth, global spirits category has shown resilient, long-term growth, while broad portfolio helps it to access different consumer occasions with brands, across price points.

Over the last five years, the company has shown impressive growth, with revenue increasing by 4.64% and gross profit rising by more than 5%.

Based on the above rationale, we have given a “Hold” recommendation at the current price of GBX 3,086.50 (as on 4th December 2019, before the market close).

Stock Spirits Group PLC

United Kingdom-based Stock Spirits Group PLC (LON: STCK) is a spirit’s company. Across a wide array of spirits products, the company has a portfolio of over 40 brands. Several products have category or market-leading positions in the main geographic markets. The company segments are differentiated into four division: Poland, Czech Republic, Italy, and Others.

On 13^th May 2019, the company will announce the interim results.

Financial Highlights (for the year ended 30 September 2019, €million)

(Source: Preliminary Results, Company Website)

The company’s reported volume stood at 14.4 (million 9 litre cases), an increase of 8.5 per cent on a proforma basis from the previous year data. Total volume, excluding the impact of acquisitions (underlying basis) in 2019, was 14.3 million 9 litres cases, an increase of 8.0% from the proforma 2018 volumes. For the 12-month period to 30 September 2019, the company’s total group revenue stood at €312.4 million, an increase of 11.6% on a constant currency proforma basis and an increase of 10.6% on a proforma basis. On a reported basis, the total revenue surged by 61.2% from €193.8 million in FY18. Total group revenue for the financial year 2019 included €4 million from the acquisitions. Total underlying revenue (reported revenue excluding revenue from acquisitions) stood at €308.4 million, up by 10.1% on a constant currency proforma basis and up 9.2% on a proforma basis. On a reported basis, the total underlying revenue rose by 59.2% in FY19. The increase in volume and revenue was driven by the successful growth strategy and delivered the premiumisation target. 

For the 12-month period, the adjusted EBITDA stood at €63.2 million, an increase of 7.4% on a constant currency proforma basis and 6.5% on a proforma basis. In the financial year 2019, the profit was up by 107.8% to €28.3 million; basic earnings per share (EPS) surge by 107.9% to €14.26 cents; adjusted basic EPS rose by 17.7% to €19.68 cents.

For the year 2019, the total dividend per share increased by 5.1% to €8.94 cents. The Board also proposed a final dividend per share of €6.31 cents. On 30^th September 2019, the net debt stood at €42.3 million.

Share Price Performance

Daily Chart as at December-04-19, before the market closed (Source: Thomson Reuters)

On 4th December 2019, Stock Spirits Group PLC shares were trading at GBX 193.80 at the time of writing before the market close (at 8:35 AM GMT), up by 2.87% against the previous day closing price. Stock's 52 weeks High and Low are GBX 241/GBX 188. The company's stock beta stood at 0.19, reflecting the lower volatility as compared to the benchmark index.

The shares of the company have delivered a negative return of 4.77 per cent in the last month. On Year to Date basis, the company’s stock has given investors 6.83 per cent of a negative return.

Conclusion
The acquisition with Distillery Franciacorta in Italy and Bartida in the Czech Republic were completed in 2019.It will assist in greater scalability, more premium portfolio, and new distribution capabilities that reflect the decent business model. In certain regions, the company will face some challenges, with the proposed excise tax increases in Poland and the Czech Republic. The group is exposed to foreign exchange rate volatility, with key trading currencies continue to be the Czech Koruna and the Polish Z?oty. Key risks which may retard the group’s performance like overall economic and political changes and consumer confidence in major geographic markets in Eastern and Central European markets where uncertainty is deemed to be higher than in other European countries.

Based on the risks associated with the company’s operations, we have given a "WATCH" recommendation at the current price of GBX 193.80 (as on 4th December 2019, before the market close) with support from few catalysts needs to be evaluated at a later stage.

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