Highlights of the week of July 25, 2016.

Dear PGM Capital Blog readers,

In this weekend’s 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 July 25, 2016:

• Diageo reported full-year financial results on Thursday, July 28, 2016.
• USA Q2-2016 GDP growth declines to 1.2 percent.

DIAGEO FULL-YEAR FINANCIAL RESULTS:
Diageo plc is a British multinational alcoholic beverages company headquartered in London, England. It is the world’s largest producer of spirits and a major producer of beer.

Diageo’s brands include Smirnoff (the world’s best-selling vodka), Johnnie Walker (the world’s best-selling blended Scotch whisky), Baileys (the world’s best-selling liqueur), and Guinness (the world’s best-selling stout).

It also owns 34% of Moët Hennessy, which owns brands including Moët & Chandon, Veuve Clicquot and Hennessy.

Diageo has a primary listing on the London Stock Exchange under the symbol DGE.L, and is a constituent of the FTSE 100 Index. It has a secondary listing on the New York Stock Exchange, as an ADR, under the symbol DEO.

On Thursday, July 28, the company reported its full-year financial results, for its fiscal year ending on June 30, 2016.

Highlights:

• Organic volume grew 1.3% worldwide, driven by 9% growth in Africa. North American volume increased just 1%, but sales were up 3%, and operating profit grew 4%.
• Every major market experienced improved organic growth versus 2015 with 70% of overall growth coming from North America, Europe, Russia, and Turkey.
• Diageo’s global-giant brands, which include Johnnie Walker, Smirnoff, Captain Morgan, Guinness, Bailey’s, and Tanqueray, all grew organic net sales during 2016. That’s a sharp improvement from a year earlier when only Tanqueray displayed any growth.
• Margins also expanded on an organic basis from 28.35% in 2015 to 28.69% in 2016.
• The board recommended a final dividend increase of 5% bringing the full year dividend to 59.2 pence per share, payable on October 12, 2016, for shareholders on record on August 12, 2016.
• As can be seen from below chart the stock of the company is up YTD with 16.43 percent.
  

USA Q2-2016 GDP GROWTH DISAPPOINTS:
On Friday July 29, USA Commerce Department, reported that in the second quarter, the country’s Gross domestic product increased at a 1.2 percent annual rate after rising by a downwardly revised 0.8 percent pace in the first quarter. The economy was previously reported to have grown at a 1.1 percent pace in the first quarter of this year.

PGM CAPITAL ANALYSIS AND COMMENTS:

Diageo:
Diageo’s full year financial report, presented last Thursday, showed that, international markets are taking to company’s products, particularly in Africa, and U.S. consumers are trending toward more expensive brands, which will continue to be tailwind for both top-line growth, as well as bottom-line profitability for the company.

The uncertainty in Britain, due to the result of the  BREXIT referendum is certainly throwing Diageo for a loop, but management said it’s working with the government to make sure it has access to the markets it serves.

As can be seen from below 5-year chart, the shares of the company has appreciated with approx. 81.5 percent in the last 5 years.

Based on the company’s fundamentals, strong balance sheet and ability in, increasing its dividend payout YOY, we have a BUY rating on the shares of the company.

Disappointed USA Q2-2016 GDP:
The fact that the US second quarter growth, that came in well below analyst expectations, had fuelled a reassessment of rate rise expectations and hitting the US-Dollar.

In the wake of the dodgy GDP data, market expectations that the FED will raise rates before the end of the year have dropped from 45 percent to 37 percent as can be seen from below chart.

As a consequence of this, the US-Dollar index declined on Friday with US$ 1.209 or 1.25% to close the week at US$ 95.53 as can be seen from below chart.

Precious metals:
On the other-hand, Gold, Silver, Platinum and Palladium soared on Friday, for which Palladium and Platinum had an excellent date by appreciating with respectively US$ 13.00 or 1.41% and US$ 16.00 or 1.87% an ounce.

As can be seen from below chart, Palladium and Platinum are up YTD respectively with; 30.6% and 30,2%.

The PGM Component 50 Index:
The PGM Component 50 Index, which is heavily weighted with precious metals and other wealth preservation’s securities, is up 37.47 percent YTD, and has closed on Friday, July 29th at fresh new all-time high of 1,234.94 points.

We believe that a very serious global economic crisis, is on the horizon, for which reason during the last four years, via several interviews and blog articles we have been warning investors, for turbulent times ahead and that Gold and other precious metals are the only insurance against it.

Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that prices of precious metals and the stock of their producers might be very volatile and that sharp corrections may happen in the short term.

Until next week.

Yours sincerely,

Eric Panneflek