Highlights of the week of January 22, 2018

Dear PGM Capital blog readers,

In this weekend blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money, in the week of January 22, 2018, as follows::

  • Diageo reports Interim Results, half year ended 31 December 2017.
  • The Hong Kong “Hang Seng” index hits record High.

DIAGEO H2-2017 FINANCIAL RESULTS:

On Thursday, January 25, Diageo, the world’s largest distiller’s reported its 2018 Interim Results, half year ended 31 December 2017.

Highlights:

  • Net sales (£6.5 billion) and operating profit (£2.2 billion) were up 1.7% and 6.1%, respectively, as organic growth was partially offset by adverse exchange.
  • All regions contributed to broad based organic net sales growth, up 4.2%, and organic volume grew 1.8%
  • Organic operating profit grew 6.7%, ahead of top line growth, as higher marketing investment was more than offset by efficiencies from our productivity programme
  • Cash flow continued to be strong and in line with last year, with net cash from operating activities at £1.2 billion and free cash flow at £1 billion
  • Basic EPS of 82.2 pence was up 36.3%. Pre-exceptional EPS was 67.8 pence, up 9.4%, driven by higher organic operating profit and lower finance charges
  • The interim dividend increased 5% to 24.9 pence per share, payable on April 6, 2018, for shareholders on record of, February 23, 2018, for which the ex-dividend date is set for February 22, 2018.
    • A dividend reinvestment plan is available to holders of ordinary shares in respect of the interim dividend and the plan notice date is 14 March 2018.

All regions reportedly contributed to broad based organic net sales growth, up 4.2%, and organic volume grew 1.8%.

The report highlighted that the company’s organic operating profit grew 6.7%, ahead of top line growth, as higher marketing investment was more than offset by efficiencies from its productivity program.

HONG KONG HANG SENG INDEX AT RECORD HIGH:

Hong Kong’s benchmark index Hang Seng ended Friday, January 26, at a record high, capping its seventh week of gains, amid optimism toward global economic recovery and accelerated money inflows from mainland China.

As can be seen from below chart, at close of trade, the Hang Seng index was up 499.67 points or 1.53 percent at 33,154.12.

Word’s biggest Bank, ICBC (1398.HK) climbed nearly 3%, while internet giant Tencent (0700.HK) and insurer Ping An (2318.HK) , which helped the Hang Seng surge 36% last year, rebounded 2.5% Friday.

As of Thursday, the index had risen for 23 of the past 26 trading days, a total gain of 14%.

The top gainer on Hang Seng last Friday was, China Construction Bank Corp, (0939.HK) up 5.601 percent to close at a record high of HKD 9.05 a share as can be seen from below all time chart.

PGM CAPITAL COMMENTS & ANALYSIS:

Diageo:

Commenting on the results, the company’s chief executive Mr. Ivan Menezes said:

As can be seen from below chart, the shares of the company has appreciated in the past 10 year, with approx. 152 percent, while its dividend payout, in the same period has increased with approx. 75 percent.

Based on the company’s fundamentals, we have BUY rating on the shares of the company.

The Hang Seng Index at record high:

Hong Kong is still very much the gateway for China plays and the recent round of macro data for China, shows fair sailing.

On Friday January 26, at 08:17 GMT, the Chinese yuan was quoted at 6.3184 per U.S. dollar, 0.21 percent higher than the previous close of 6.3315. , on Thursday January 25.

As of the previous close of the market on Friday January 26 the Hang Seng has risen 9.14 percent this year, while China’s H-share index was up 14.3 percent.

At the close of the market in Asia on Friday, January 26, the price-to-earnings ratio of the Hang Seng index was 14.9, while the dividend yield was 2.7 percent, which means that the Hang Seng Index very cheap when compared to the USA and most European markets.

Based on this we have a BUY rating on mainly the four big Chinese Banks, for which their P/E ratio are around 7 and a dividend yields are around 4 percent.

Last but not least, before taking any investment decision, always take your investment horizon and risk tolerance into consideration and keep in mind that; share prices don’t move in a straight line and that Past Performance Is Not Indicative Of Future Results.

Yours sincerely,

Eric Panneflek

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