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 six months ended 31^st December 2019, £million)

(Source: Interim Report, Company Fillings, LSE)

For the first half of 2020, the reported net sales increased by 4.2% to £7.2 billionas compared with the corresponding period of the last year. The operating profit was reported at £2.4 billion in H1 FY20, an increase of 0.5%against the same period last year. This increase was driven by the organic growth offset by exceptional operating items, unfavourable exchange, and acquisitions and disposals.Organic operating profit for the first half of 2020 increased by 4.6%, ahead of organic net sales, due to robust price/mix and productivity benefits from everyday cost efficiencies, partly offset by upweighted marketing investment and cost inflation. In H1 FY20, the basic earnings per share decreased by 2.1% to 79.2 pence against the same period last year, driven by the previous year exceptional gains. The pre-exceptional earnings per share surged by 4.2% to 80.2 pence in H1 FY20 against the 77 pence in H1 FY19, due to higher operating profit and the capital return programme. The company has delivered strong cash flow with net cash from operating activities decreased by £0.3 billion to £1.3 billionagainst the previous period and free cash flow reduced by £0.4 billion to £1 billion against the previous period. Interim dividend per share increased by 5% to 27.41 pence against the same period last year (H1 FY19: 26.1 pence).

Share Price Performance

Daily Chart as at January-30-20, before the market closed (Source: Thomson Reuters)

Diageo PLC shares were trading at GBX 3,149 at the time of writing before the market close (at 8:15 AM GMT) on 30th January 2020 and were up by 1.25% versus the previous day closing price. Stock 52 weeks High and Low are GBX 3,633.50/GBX 2,700. The group’s stock is reflecting the lower volatility as against the benchmark index based on the company’s beta of 0.65.

Conclusion
In the current period, the company has delivered another good performance, with broad-based organic net sales increase across all categories and regions. The company has continued to increase investments for growth initiatives and marketing while increasing organic operating margins. The company expect that they will deliver the return to 4.5 billion pounds of capital to shareholders for the financial year 2020 to 2022. The company was in line with the current mid-term guidance despite the face of increased levels of volatility in Latin America, India and Caribbean and Travel Retail.

For the financial year 2020, the company expect organic net sales increase to be towards the lower end of the range of 4% to 6% mid-term guidance.The company continue to anticipate organic operating profit to increase by approximately 1 percentage point ahead of organic net sales. There is continuing uncertainty in the international trade environment. The company stay focused on building the long-term health of the brands, a culture of everyday efficiency, and supported by data-led insights.

Based on the above rationale, we have given a "HOLD" recommendation at the closing price of GBX 3,110 (as on 29th January 2020).

3i Group Plc

3i Group Plc (LON: III) is a London, United Kingdom-based investment company, which specialises in core investment markets in northern North America and Europe. It also comprises two complementary businesses, Infrastructure and Private Equity. The group has £8.6 billion of proprietary capital value, £6.9 billion of Private Equity proprietary capital value, £1.2 billion of Infrastructure proprietary capital value, and asset under management of £485 million in Corporate Assets.

FY2020 Q3 Performance Update (as on 30^th January 2020)
During the period, the company has delivered a strong underlying performance. In the third quarter of 2020, the NAV per share increased to 877 pence against the previous period (30 September 2019: 873 pence). The private equity for the current quarter generated cash proceeds of £189 million. This was primarily driven by the distributions from Hans Anders and Audley Travel and the partial divestment of Basic-Fit.

For the 12 months to the end of December 2019, the revenue generated from Action increased by 21%, like-for-like sales growth of 5.6% and also launched 230 new stores, taking its total stores to 1,552 across seven countries.

The company released in December 2019, the sale of Aspen Pumps, for proceeds of 208 million pounds, and comprising the 52 million pounds of proceeds already obtained, generated an IRR of 34% and an overall money multiple of 4.1x. The company has completed two new Private Equity investments in a bioprocessing platform and Evernex and four additional bolt-on acquisitions for Formel D, Q Holding, WP, and ICE.

The company also delivered another robust quarter from the Infrastructure team, with the highly accretive sale of WIG (Wireless Infrastructure Group) out of 3i Infrastructure Plc and additional rail investment in North America.

Share Price Performance

Daily Chart as at January-30-20, before the market closed (Source: Thomson Reuters)

3i Group Plc shares were trading at GBX 1,100.50 at the time of writing before the market close (at 8:40 AM GMT) on 30th January 2020 and were down by 1.034% versus the previous day closing price. Stock 52 weeks High and Low are GBX 1,189/GBX 811.05. The group’s stock is reflecting the higher volatility as against the benchmark index based on the company’s beta of 1.48.

Conclusion
The company’s investment portfolio is well-positioned for future growth despite a challenging market condition globally and coupled with uncertainties around the Withdrawal Agreement. The company operates in a market which is affected by geopolitical uncertainty and volatility.

The bolt-on activity and new investment have continued across both portfolios.The company has successfully delivered liquidity to the Eurofund V investors in Action while the group has also continued to drive sector-leading sales and profit growth as it develops across Europe.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 1,097 (as on 30th January 2020, before the market close at 8:27 AM GMT).

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