Results season is in full swing but UK-focused companies have been unable to give much guidance on the business consequences of the Brexit vote. “Too soon to tell” has been the refrain. Could three FTSE 100 multinational giants with results out today be a cure for Brexit blues?
Diageo
As in recent years, exchange rates adversely impacted reported numbers from drinks giant Diageo (LSE: DGE). Reported net sales of £10.5bn for the year to 30 June were down 3% but up 3% on an organic basis. Similarly, operating profit before exceptional items declined 2% but increased 3% organically.
Earnings per share (EPS) before exceptional items moved 1% higher (versus a City consensus for a 1% fall), and the board lifted the dividend by 5%, which was also ahead of consensus. Chief executive Ivan Menezes said the results “position us well to deliver a stronger performance” in fiscal 2017.
It’s important to the group “that the UK continues to benefit from open access to the EU as well as favourable international trade agreements,” but the immediate tangible impact of the Brexit vote will be a significant benefit from weakened sterling. At current exchange rates, Diageo estimates a favourable impact on net sales of £1.1bn, with operating profit boosted by £370m.
The shares are modestly higher at 2,145p, as I’m writing, putting the company on a forward price-to-earnings (P/E) ratio of 21 with a prospective dividend yield of 2.9%. Momentum is clearly returning to this high-quality business after a few sluggish years, and the stock looks very buyable to me at current levels.
British American Tobacco
British American Tobacco (LSE: BATS) announced strong half-year numbers this morning. Reported revenue increased 4.2%, but 7.8% at constant exchange rates. Underlying EPS grew 10.9% (13.4% at constant currency), and the board lifted the interim dividend by 4%.
Looking ahead to the full year, management said it believes the Brexit vote will have no material impact on the group’s underlying business.
The shares are modestly higher in morning trading. At 4,800p, the forward P/E is 20, with a prospective dividend yield of 3.4%. As another high-class, globally-diversified and defensive business, I rate British American Tobacco as a great buy-and-hold pick.
Smith & Nephew
Medical devices group Smith & Nephew (LSE: SN) reports in dollars, and foreign exchange rates didn’t have a major impact on revenue in its half-year numbers announced today. Reported top-line growth was 2%, while underlying growth was 3%.
However, an expected transactional currency headwind hit numbers lower down the income statement, feeding through to an 18% decline in reported EPS (underlying EPS was 5% lower). More positively, the current dollar/sterling exchange rate will have a significant positive impact on the interim dividend, with a 4% dollar increase translating into a sterling rise of over 20%.
Smith & Nephew believes Brexit “will not have a significant impact on our ability to conduct business into and out of the EU in the short-to-medium term,” while chief executive Olivier Bohuon expressed his confidence in “our positioning and long-term prospects.”
The shares are lower in morning trading at 1,240p. On a forward P/E of 20 with a well-covered 2% dividend yield, this is another stock I reckon is worth buying to beat the Brexit blues.
