Diageo: Shares Fell Again After FY23 Results, Cheap at 20x P/E

Company Update (DGE LN) (Buy)

Highlights

• Diageo shares have now fallen 18% since 2021 year-end

• FY23 results showed solid growth in sales and earnings

• U.S. inventories have normalized; demand is healthy

• Adjusted EBIT should grow at 6-9% annually as targeted

• We see 62% total return (19.1% p.a.) by June 2026. Buy

Introduction

Diageo shares have fallen another 3.8% (in GBP in London, and by 5.4% in USD with its American Depository Receipts) since FY23 results were released on August 1, and are down 19% since the end of 2021:

Diageo Share Price (Last 5 Years)

Source: Google Finance (28-Aug-23).

Diageo shares are at 20.1x FY23 earnings. FY23 results were better than we expected, with organic growth of 6.3% in sales and 6.7% in Adjusted EBIT (10.7% and 9.5% respectively in GBP). We believe Diageo did not materially over-earned in FY23. In the U.S., distributor inventories have now normalized and consumer demand remains healthy; in China, sales are down but represent less than 5% of group sales. The main negative is a slight loss i…