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Diageo: Guinness maker looks to put fizz back in its share price

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All eyes will turn to Guinness maker Diageo on Tuesday, as the firm provides investors with an update on trading in the first half of the year. 

The FTSE 100 firm, which also makes Smirnoff vodka and Captain Morgan rum, has around £29bn wiped off its market cap value over the past year amid a slowdown in trade focussed particularly in Latin America.

However, shares in the firm rallied up close to five per cent on Friday, after a better than expected financial report from fashion conglomerate LVMH reignited investors’ confidence in the luxury market – with Diageo’s ‘premiumisation’ strategy over recent years potentially ready to once again pay off.

In November last year, the spirits to whiskey supplier downgraded its forecast for the year as a result of cash-strapped Latin American and Caribbean shoppers steering clear of top-shelf liquor. 

China’s ‘anti dumping probe’ into EU Brandy – solidifying trade tensions between the two continents – is also expected to pile on more misery for the firm if the Asian superpower clamps down on imports. 

Russ Mould, investment director at AJ Bell, said  for the full-year analysts are expecting a flat pre-tax profit at £4.7bn  on a stated basis, with operating profit also slightly down. 

He explained: “For the first half only, consensus is looking for a 1.6 percentage point drop in organic operating margin and a five per cent  decrease in organic operating profit, which translates into an underlying earnings per share (or EPS) figure of 107.4p, compared to 100.9p in the first half last year, helped by the lower share count in the wake of the ongoing share buyback.”

A close view on the firm comes less than a year after its long serving chief Ivan Menezes, passed away unexpectedly, with successor Debra Crew forced to step into the role earlier than expected. 

Crew, who was an internal recruit, has been tasked with steering one of the world’s largest alcohol groups amid a challenging time for both consumers and suppliers.  

Diageo has not been helped by being forced to hike prices for consumers, chalking the decision up to rising costs. 

Mould added: “The global drinks giant, best-known for its Johnnie Walker and Talisker scotch whiskies, Captain Morgan rum, Smirnoff vodka and Guinness, will be keen to move on from 2023. 

“Its longstanding and highly respected chief executive, Ivan Menezes, announced his retirement only to pass away before the planned date, and one of the first jobs undertaken by his successor, Debra Crew, was to dish out a profit warning back in November.”

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