Why Are Diageo plc And Audioboom Group PLC Falling Today?

Roland Head explains the news behind today’s falls for Diageo plc (LON:DGE) and Audioboom Group PLC (LON:BOOM).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Diageo (LSE: DGE) have slipped lower today following news reports that the firm is under investigation by the US Securities and Exchange Commission (SEC).

According to the Wall Street Journal, which broke the story, the investigation reportedly involves allegations that Diageo boosted its sales figures by shipping more cases to distributors than they actually ordered.

Diageo’s US-traded American Depository Receipts (ADRs) fell by nearly 5% yesterday following the report, but the firm’s UK-listed shares have not fallen quite so far, and are down by 1.8% as I write.

Strange coincidences?

This investigation only appears to relate to US sales and I don’t expect it to become a major issue for Diageo. Despite this, the WSJ article highlights some interesting coincidences that shareholders might want to consider.

In January, Ivan Menezes, Diageo’s chief executive, said during a call with analysts that the firm would shift the focus of its reporting away from shipments to distributors and towards the sales made by distributors. Mr Menezes said that this could reduce the level of inventory held by distributors.

In June, Diageo’s North American President, Larry Schwartz, announced his retirement. The firm’s chief marketing officer for North America and a US sales president have also departed recently.

These revelations come at an awkward time for Diageo, as the firm is currently the subject of reports that Brazil’s richest man, brewing tycoon Jorge Lemann, might be considering a bid. This could be one reason Diageo shares have not reacted much to today’s news.

Although I still rate Diageo highly, I suspect there may be better buying opportunities in the months ahead.

Is Audioboom lacking volume?

One of today’s biggest fallers is small-cap internet audio platform Audioboom Group (LSE: BOOM). At the time of writing, the firm’s shares have fallen by 9% to 5p, leaving them down by 50% so far this year.

The trigger for today’s fall was Audioboom’s interim results. Registered users were up 27% to 4m, while the number of active content partners rose by around 50% to more than 3,000.

However, there was no real evidence that Audioboom is making progress with monetising its service. Revenue from the last six months was just £46,000. Although this was nearly double the £24,000 generated during the same period last year, it’s not enough to be material.

The only glimmer of hope was news that Audioboom has signed a revenue sharing agreement with Cumulus Media. However, this deal was inked after the half-year ended and the firm did not provide any information about how much revenue this is likely to generate.

Based on its £6.2m current cash balance and cash consumption of £2.7m over the last six months, Audioboom has enough cash left to operate for a year or so.

The firm’s broker is forecasting revenue of £7.0m for 2016, but given today’s results, I’m not totally convinced.

In my view Audioboom is a very risky buy, and I believe there are currently far better opportunities in the small-cap sector.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares of Diageo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »