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Diageo Slumps 2% As It Warns On Covid-19 Virus

There is no hiding from the coronavirus (Covid-19) and it appears few industries are safe from the reaches of the killer bug.

Airlines and travel and tourism stocks are the obvious victims, owing to travel restrictions – be they forced or self-imposed. We have seen travel and tourism stocks lead the charge southward earlier this week with EasyJet (LON:EZJ) down 17% at one point on Monday.

However lock downs or simply the fear of being in public spaces where you could be vulnerable to catching the virus is impacting a much wider set of industries.

Asia Pacific: Diageo’s Key Market

Diageo (LON:DGE) is the latest to warn on the impact of coronavirus. The world’s biggest spirits maker warned today that the virus is expected to knock GBP200 million off operating profits this year, which equates to roughly 5%.Sales in Asia are drying up. Bars and restaurants in China – a rapidly growing market – are closed, sales in airports have been hurt, conferences and banquets have been reduced or cancelled and not just in China, this is across much of Asia.The Asia Pacific region is a key growth area for Diageo. Last year it accounted for 21% of sales and China saw organic sales lift 11%.Consequently, net sales are now expected to take a hit in the region of GBP225 to GBP235 million. The stock was down 1.9% today and 4.75% so far this week.

Disruption Until March?

Diageo has said that it expects the disruption at least through the end of March. It expects normal trade to resume by June when it expects sales to return to normal levels. While the spread of coronavirus is showing signs of slowing in China, it is picking up across the rest of Asia and the world. Given that we are, according to many scientists, on the cusp of a pandemic, these forecasts could be a little bullish from Diageo.

Any sign of travel restrictions or more lockdowns across Europe or in the U.S. could see the share price take another leg lower.

Chart Thoughts

Diageo is trading at an 11-month low, below its 50, 100 and 200 sma, with bearish momentum.

  • Support can be seen at 2830 (Jan. 30, ’19 low) prior to 2790 (low March 4,’19)
  • Resistance can be seen at 2937 (today’s high) prior to 3029 (yesterday’s high) and 3069 (Monday’s high)

Diageo Slumps 2% As It Warns On Covid-19 Virus

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