Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
magazineDiageo's reassuringly expensive
Diageo (DGE) £24.55
Gain to date: 13%
Original entry point:
Buy at £21.73, 12 Jan 2017
Our positive stance on alcoholic drinks giant Diageo (DGE) has been rewarded with a 13% share price advance so far. Investors’ thirst for the shares has been further stimulated by news (27 Jul) of record full year profits, an upgrade to its three-year margin improvement target and the launch of a palate-pleasing £1.5bn share buy-back.
In January, we flagged the top line growth and margin enhancement potential on offer at the world’s biggest spirits company, whose winning brands include Johnnie Walker whisky, Captain Morgan rum, Smirnoff vodka and Tanqueray gin.
Diageo’s sales and operating profits were up 15% to £12.1bn and 25% to £3.6bn respectively in the year to June, helped by currency movements but more importantly, reflecting robust organic growth. CEO Ivan Menezes said his charge ‘delivered consistent strong performance improvement across all regions’ and flagged ‘progress in our focus areas of US Spirits, scotch and India’.
Diageo is an ‘expensive defensive’ but we’re staying positive given wider macro-economic uncertainties. Diageo’s strong brands represent an economic moat, engendering loyalty among consumers, conferring pricing power upon the business and creating barriers to entry for rivals.
We’re in agreement with the bullish consensus, fans of Diageo’s brand strength, geographically diversified earnings and strong free cash flow generation.
Important information:
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
