LONDON BRIEFING: Diageo Benefits From Strong Off-Trade As Bars Close

(Alliance News) - Brewer and distiller Diageo managed to post interim organic net sales growth ...

Alliance News 28 January, 2021 | 8:10AM
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(Alliance News) - Brewer and distiller Diageo managed to post interim organic net sales growth despite virus restrictions hitting bars and restaurants, it said Thursday.

Sales for the six months to December 31 edged down 3.6% to GBP10.44 billion from GBP10.83 billion a year ago, with pretax profit falling 11% to GBP2.20 billion from GBP2.46 billion. Organic net sales rose 1.0%, the Smirnoff vodka maker noted, despite a hit to Travel Retail and on-trade restrictions.

The on-trade market comprises outlets such as bars, restaurants and clubs, while off-trade is focused on at-home consumption. Travel Retail includes duty-free sales in airports.

"We rapidly pivoted to the channels and occasions most relevant to consumers and invested behind new opportunities. This more than offset the impact of on-trade restrictions and the decline in Travel Retail," Chief Executive Ivan Menezes explained.

Menezes added that North America, Diageo's largest market, performed "particularly strongly and ahead of our expectations".

Diageo said it expects a strong sequential performance improvement in all regions compared to the second half of the 2020 financial year, though anticipates a continued hit from on-trade restrictions and disruption to Travel Retail.

Diageo lifted its interim dividend by 2% to 27.96 pence.

The stock was up 4.5% in early trade on Thursday.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: down 0.8% at 6,512.41

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Hang Seng: down 2.6% at 28,543.80

Nikkei 225: closed down 1.5% at 28,197.42

DJIA: closed down 633.87 points, or 2.1%, at 30,303.17

S&P 500: closed down 98.85 points, or 2.6%, at 3,750.77

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GBP: down at USD1.3652 (USD1.3698)

EUR: soft at USD1.2090 (USD1.2100)

Gold: down at USD1,835.96 per ounce (USD1,848.50)

Oil (Brent): down at USD55.37 a barrel (USD56.27)

(changes since previous London equities close)

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ECONOMICS AND GENERAL

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Thursday's Key Economic Events still to come

World Economic Forum's Davos Agenda virtual meeting continues

1100 CET EU business & consumer surveys

1400 CET Germany consumer price index

0830 EST US advance economic indicators report

0830 EST US gross domestic product

0830 EST US jobless claims

1000 EST US new residential sales

1030 EST US EIA weekly natural gas storage report

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The number of people infected with coronavirus is at the highest level recorded in England since May, according to a study. The research, which saw more than 167,600 volunteers tested in England between January 6 and 22, showed that Covid-19 infections remained very high throughout this time, with one in 64 people infected, PA reports. It comes after UK Prime Minister Boris Johnson announced lockdown measures will remain in place in England until at least March 8, and said travellers returning to the UK from "red list" countries will be sent to quarantine hotels for 10 days. The findings from Imperial College London's React study show infections in England have flattened but are at the highest level recorded by the researchers, with the indication of a decline in the last week of the survey. The main findings from the eighth round of the study suggest national prevalence was 1.57%, or 157 per 10,000 people infected, and it estimated the national R number to be at 0.98 with a range of 0.92 to 1.04. Regional prevalence was highest in London at 2.83%, while in the South West it was 0.87%.

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BROKER RATING CHANGES

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BARCLAYS RAISES ENTAIN TO 'OVERWEIGHT' (EQUALWEIGHT) - TARGET 1,600 (1,500) PENCE

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JEFFERIES RAISES AVEVA GROUP TO 'BUY' ('HOLD') - TARGET 4,500 (4,000) PENCE

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COMPANIES - FTSE 100

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St James's Place reported a "robust" set for results for the final quarter of 2020. Gross inflows amounted to GBP4.02 billion in the three months to December 31 and net inflows GBP2.29 billion, with closing funds under management GBP129.34 billion, up 11% from GBP116.99 billion at the end of 2019. For the year, the wealth management firm said, gross inflows of GBP14.33 billion were 5% lower than 2019. Given the operating environment since March, this "bears testament to the resilience of our business". "We continued to achieve strong retention of client investments in spite of the unprecedented external conditions, resulting in net inflows of GBP8.25 billion, representing 7% of opening funds under management," said Chief Executive Andrew Croft.

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COMPANIES - FTSE 250

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easyJet said its first quarter was in line with expectations despite a slump in passengers amid strengthened travel restrictions across Europe. The budget airline's first quarter ended on December 31. Passenger numbers in the quarter decreased by 87% year-on-year to 2.9 million, in line with a 82% fall in capacity to 4.4 million seats - representing 18% of 2019 financial year capacity levels, and in line with expectations that easyJet would fly no more than 20%. Load factor during the quarter was 66%. Total revenue for the first quarter slumped 88% to GBP165 million, with passenger revenue down 90% to GBP118 million and ancillary revenue sliding by 84% to GBP47 million. Headline costs, excluding fuel, were reduced by 52% at constant currency as easyJet achieved savings across airport fees, ground handling and crew and maintenance costs. The airline said it estimates that its fixed cost and capital expenditure cash burn in a fully grounded scenario has now fallen to around GBP40 million per week. Based on current travel restrictions, easyJet said that, for its second quarter, it expects to fly no more than 10% of capacity in the same period of the 2019 financial year. easyJet said it is anticipating a release of pent-up demand for travel as vaccinations get underway, and retains the flexibility to rapidly ramp-up to capture this. easyJet also noted that since its level of EU ownership on January 1 was below the required majority to be allowed to fly within the EU - at 47.35% - it has started suspending voting rights to some non-EU shareholders on a 'last in, first out' basis.

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Fellow budget carrier Wizz Air also reported a sharp fall in passengers in the quarter to December 31. Revenue in Wizz's third quarter slumped 77% to EUR149.9 million and passengers carried also fell 77%, to 2.3 million. Wizz swung to an underlying loss before interest, tax, depreciation and amortisation of EUR40.9 million from earnings of EUR130.8 million a year ago. "We believe capacity levels in view of the restrictions will continue to be depressed during January, February and part of March 2021 and with the increasing administration of the Covid-19 vaccine we expect 2021 to be a year of transition with Wizz Air ready to service underlying demand in a fast and agile way as it becomes increasingly unrestricted," the company said.

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Soft drinks maker Britvic reported a decline in first quarter revenue amid the tighter virus restrictions. Britvic's revenue for the first quarter, which ended December 31, was GBP328.1 million. On a comparable basis of constant currency and excluding the disposal of the French private label juice business, this represents a 5.8% decline on a year ago, while the decline was 9.8% on a reported basis. "The introduction in GB and Ireland of tighter pre-Christmas Covid-19 restrictions, and the subsequent national lockdown measures, have put further pressure on sales in both the hospitality sector and on the go consumption. While there remains considerable uncertainty over the depth and duration of future restrictions, we anticipate they will remain in place at least through our second quarter," noted Britvic. As such, it expects performance to continue to be "significantly affected by similar adverse channel and pack mix" to that seen in the second half of the 2020 financial year, and gradually improve following the lifting of restrictions.

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Sweeteners and food ingredients firm Tate & Lyle said adjusted pretax profit for the financial year ending March 31 is expected to be "modestly ahead" of the prior year, helped by momentum in its Food & Beverage Solutions arm and higher Commodities profits. Adjusted pretax profit in financial 2020 was GBP331 million.

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Euromoney Institutional Investor said first quarter trading was "very encouraging", despite revenue falling 21% to GBP78.7 million from GBP99.2 million a year before. While Events revenue dropped 30% in the three months to December on a year before, due to the virus pandemic, Pricing and Data & Market Intelligence subscription revenue was up 14%.

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COMPANIES - GLOBAL

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Pfizer and BioNTech, makers of a Covid-19 vaccine, said their product is effective against coronavirus variants that have emerged in Britain and South Africa. In a statement, the two companies said the "small differences" detected in tests comparing the original virus and the recent versions "are unlikely to lead to a significant reduction in the effectiveness of the vaccine".

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Apple has unveiled new data privacy measures designed to protect users, as the tech giant marked Data Privacy Day by calling for more transparency around the gathering of personal information. The technology giant announced that from the spring it will require apps on its devices to get a user's permission before tracking them across other apps and websites. The update follows the introduction of so-called privacy nutrition labels that the company introduced for all apps in its App Store earlier this year. The new feature, called App Tracking Transparency, will enable users to go to their Settings app and see which apps have requested permission to track them, and make any changes as they see fit. The move came as Apple started its financial year by notching all-time revenue record, with iPhone sales alone jumping by nearly 20%, the company said late Wednesday. In the three months to December 27, the first of its financial year, total net sales soared 21% to USD111.44 billion, a company record, from USD91.82 billion 12 months earlier. The figure easily topped market forecasts, cited by CNN, of sales amounting to USD103.3 billion.

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Thursday's Shareholder Meetings

Britvic PLC - AGM

Enwell Energy PLC - GM re capital reduction to allow dividends

Europa Oil & Gas Holdings PLC - AGM

Greencoat Renewables PLC - EGM re replacement of CREST with Euroclear

Kerry Group PLC - EGM re replacement of CREST with Euroclear

Origin Enterprises PLC - EGM re replacement of CREST with Euroclear

RDI REIT PLC - AGM

J Smart & Co Contractors PLC - AGM

Sunrise Resources PLC - AGM

Tertiary Minerals PLC - AGM

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By Tom Waite; thomaslwaite@alliancenews.com

Copyright 2021 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Euromoney Institutional Investor PLC 1,026.00 -
Tate & Lyle PLC 732.00 -
Diageo PLC 3,472.50
AVEVA Group PLC 3,943.00 -
Entain PLC 1,851.00 -
Pfizer Inc 41.47

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