For the first time in four years, foreign exchange movements look like helping Diageo rather than hindering it.
The Smirnoff and Johnnie Walker spirits group said in today’s first-half results that it did not expect a currency impact on full-year operating profits in the 12 months to June 30 — something of a relief given that it had previously pencilled in a £65 million hit.
But the greater comfort came in Diageo’s reassurance that it was on track to produce a 9 per cent rise in underlying operating profits. Its US spirits business is performing well — net sales were up 6 per cent — with its position at the premium end of the market insulating it in a drop-off in demand in the $10 a bottle and below price range. Europe grew by 4 per cent, slightly better than expected. The principal weakness came in Asia after the loss of an import licence in Korea.
Taken together with the company’s upbeat outlook, those numbers — which came in at the top end of consensus forecasts — bear out Diageo’s defensiveness in difficult markets.
With pre-exceptional earnings per share forecast to rise 11 per cent this year, and 13 per cent next, Diageo deserves to trade at a premium to its peers. Even more so when its current forward earnings multiple of 16 times is a discount to its long-run average. Hold on.