Big guns predict year-end rise
30th June, 2011 by Ron Emler - This article is over multiple pages: 1 2The adage has it that its share price reflects investors’ expectations about how a company will perform in the next year or so.
In the main that is true, but it also reflects how the company’s board has massaged those expectations through briefings to the media and analysts.
All major companies give broad hints about their next profit statements and prudent chairmen and CEOs keep a little in their back pockets so that when the figures are announced as being somewhat better than predicted, the shares rise to reflect the “surprise”. Come in under the predictions and the reaction can be savage.
This weekend both Diageo and Pernod Ricard reach the end of their financial year 2010/11. Their results will not be announced for about two months, but what are their share prices saying about how they, and some of their competitors, have been faring in the first half of 2011?
Diageo, which has been very active as a wheeler dealer this year, has said it expects to improve on last year’s operating profits, the usual measure of assessing progress. The deals in Turkey, East Africa and China will not affect the year just closing, except in terms of sentiment, and Diageo’s own share price mirrors that. Since the turn of the year they have edged up by about 60p or roughly 5%.
In the six months to last Christmas, organic growth was 4%. Some markets, notably in developing economies, are expanding, but others, particularly in Europe and parts of North America are faring less well as the consumer feels the squeeze, so 5% growth in underlying profits would be about par, although that will only just beat the UK rate of inflation.
Analysts will be looking for a little more to keep them happy, especially if there is only a marginal increase in the final dividend. That could suggest husbanding cash for further deals ahead.