How will Diageo's businesses have performed in the first half compared with last year's first half? And is the group on track to meet forecasts for this year's key full-year numbers? Here's your cut-out-and-fill-in table!
Forecast FY 2012/13
Forecast FY growth
|Organic net sales (billion pounds)*||5.8||10.8||?||11.5||6.5%|
|Earnings per share (pence) pre-exceptional items||55.9||94.2||?||103||9.3%|
|Dividend per share (pence)||16.6||Final: 26.9
In its annual results for the year ended June 30, 2011, Diageo set out its medium-term targets for the business: "Average organic top line growth of 6%, organic operating margin improvement, with the first 200 basis points [1 basis point = 0.01%] achieved in the next three years, and double digit EPS growth. Achievement of these aims would underpin even stronger dividend growth."
These are pretty impressive targets, especially as CEO Paul Walsh had taken into account "a fragile global economy" from which the company is "not immune."
Diageo hit the target of organic top-line growth of 6% in its fiscal year 2011/12. Analyst forecasts for 2012/13 suggest target-beating growth of 6.5%.
Net sales are typically weighted slightly to the company's first half, and the weighting is very consistent: 53.5%, 53.5%, 53.2%, 54.4%, and 53% -- giving a five-year average of 53.5%.
Based on analyst forecasts for the full year and the historical first-half weighting, look out for net sales of around 6.15 billion pounds in the upcoming results -- 6.8% ahead of last year's first half.
Diageo's organic operating margin improved 60 basis points in 2011/12 -- a good start, but it leaves the company a bit to do to hit the 200 basis points target by 2014. It would leave Diageo a lot to do if the margin improvement in the upcoming results is anything less than a further 60 basis points.
Diageo comfortably achieved its double-digit earnings-growth target in 2011/12, with EPS increasing 12.7%. Analyst forecasts of around 103 pence EPS for the current year give an increase of 9.3%, representing a slight miss on the company's goal of double-digit growth. Nevertheless, the two-year average would still look good.
As with sales, historical EPS have been stronger in the first half. However, while the first-half sales weighting has been very consistent, the EPS weighting has been rather lumpier.
If analyst forecasts of 103 pence for the full year are on the button, we might expect to see around 60 pence for the first half with a much greater likelihood of the figure being higher than lower. Anything above 68 pence would imply analysts need to upgrade their full-year forecasts.
Diageo said achievement of its targets for the top line, margin, and EPS would underpin "even stronger dividend growth" than previously seen. The dividend uplift of 7.7% in 2011/12 was significantly ahead of the 6% increase of the previous year. Analysts are expecting even more from the dividend this year: growth of 9.7%.
If the analysts are right about a full-year dividend of 47.7 pence a share, expect the first half dividend to be around 18.3 pence because the company has consistently paid out between 38.2% and 38.5% of the full-year dividend at the halfway stage. Of course, once the half-year dividend has been declared, you can also use those percentages to give you a guide to the full-year dividend.
Diageo has repeatedly affirmed it is confident of delivering its medium-term goals, and the shares have soared 32% over the past year compared with a 7% rise for the FTSE 100.
At the time of writing, the shares are trading at 1,865 pence, or just over 18 times forecast EPS for the year ending June 30, 2013. The forecast dividend gives a yield of 2.6%.
There have been opportunities for investors to buy into this quality company on a cheaper earnings rating and higher yield in the past. Buying great companies when they're reasonably priced is one way investors like you and I can target a million-pound portfolio. A mere dream? It may be easier than you think.
G.A. Chester does not own shares in Diageo. The Motley Fool recommends Diageo plc (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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