Introduction
We review our investment case on Diageo PLC (NYSE:DEO) based on FY21 results and other recent developments.
We initiated our Buy rating on Diageo in July 2019, and have reiterated it regularly since. Including
Diageo: Recovery Potential Remains After FY21 Rebound, 2.1% Dividend Yield
Summary
- While Diageo shares have returned 21.9% year-to-date as the COVID situation continues to improve, they are still attractive in our view.
- A strong year-on-year rebound in FY21 (ending June) showed Diageo has resumed its long-term growth trajectory.
- Much recovery potential remains, as Travel Retail, the on-trade, and some regions were still disrupted; margin will rise when sales recover.
- FY22 outlook is for further sales growth and margin expansion; the earnings risk from China is limited by Diageo's global diversification.
- With shares at 3,481.0p, we expect a total return of 41% (9.9% annualized) by June 2025. The Dividend Yield is 2.1%. Buy.
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