Analysis

Analysis - Diageo stays solid after North America boost

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Diageo's prospects remain strong after a solid Q3 performance in North America and a better than expected showing in Western Europe, according to analysts. 

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The company today (18 April) reported a 4% rise in third-quarter group sales, helped by a 6% rise in North America, its biggest and most profitable market. However global volumes slipped by 1% in the quarter.

On North America, analysts Stifel said the performance is a sign that Diageo's volumes in the region are "improving" despite an accelerating price/mix.

"We reiterate our 'Buy' recommendation, seeing an attractive risk/reward from Diageo's long-term growth prospects and an attractive and improving outlook in North America," Stifel said in a note. 

Analysts Investec said that the group's performance "under the hood" looked "solid", even though its Q3 had been slow.

"North America remains strong and the new Western Europe division wasn’t as bad as we were expecting," it said. "We think that Q3 is Diageo’s smallest quarter of the year at around 20% of sales, so its influence is small and phasing issues will have a disproportionate effect."

On future M&A prospects, Nomura said the group's strong balance sheet offered "further scope" for activity. Meanwhile it said the company still looks like to gain control of United Spirits "over time" even though "it looks unlikely that the tender offer will succeed at the price being offered".


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