14th Jul 2015 13:46
LONDON (Alliance News) - Berenberg reiterates its Buy rating and GBP23.50 price target on drinks giant Diageo, saying that while Diageo has just finished the two worst years it has had in the past 15 years, it should, in the financial year 2016, return to organic top-line growth closer to what it experienced before things started going downhill.
Diageo shares are trading up 0.2% at 1,932.00 pence Tuesday afternoon.
The broker notes that Diageo's organic top-line growth in the financial year 2014 was 0.4% and said it expects this to fall to negative 0.3% in the financial year 2015. This is significantly lower than the average organic top-line growth of 4.0% that Diageo experienced between 2008 and 2013, but Berenberg forecasts that it will return to 3.0% growth in the financial year 2016.
"Unfortunately, destocking is the price to pay as the focus changes to sellout and execution. Fundamentally, however, this change will make Diageo closer to its customers and a stronger organisation on the execution side of things," Berenberg says.
The broker says that while focusing on sellout has hit the top-line in the short term, it does improve cash flow generation, which also will benefit from a progressive normalisation in capital expenditure and in inventory investments.
"While it is our view that improved cash flow generation in FY15 alone is unlikely to be enough to cheer up investors following two years of sub-optimal top-line growth, we believe a more confident tone in the guidance and any early indications that FY16 will start to see shipments converging with depletions growth may mark a gradual change in investors? perception," Berenberg says.
Diageo is scheduled to provide its results for its financial year to June 30 on July 30.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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