Diageo lifted by African prospects

Diageo is toasting a successful City meeting on Monday which focused on its African plans.

Analyst Wyn Ellis at Numis said the drinks giant’s sales in Africa grew by 5% in the first half, contributing 13% of total sales and 10% of operating profits. He said:

The overall message was that management was confident of growing revenues in Africa in high-single to low-double digits in the medium term with margin expansion of 20-30 basis points per annum. This is broadly in line with our (and we believe consensus) expectations. In the near-term, however, currency devaluations, inflation, commodity price movements, political uncertainty and competitive pressures means that progress is likely to be much more mundane.

Diageo has promising medium-term growth attractions; we believe that progress in Africa and India will in due course be transformational. However, it faces continued short-term challenges in volatile Emerging Markets and we believe the outlook for the key North American operations is somewhat lacklustre. The shares have traded in a range of 1700p-2000p over the last 12 months, and we find it difficult to identify a catalyst that will move the stock out of this range in the near term.

At the moment the shares are up 12.5p at £19.52.

The company also unveiled a new range of drinks on Monday, including Guinness Golden Ale and Pimm’s Cider Cup, as well as launching Pimm’s and Gordon’s frozen drink pouches.