Be patient with the FTSE 100 drinks giant

DIAGEO (DGE) £26.78

Loss to date: 4.4%

Original entry point: Buy at £28.02, 2 August 2018


We’re sticking with our bullish stance on international drinks maker Diageo (DGE), despite a mixed trading update on 20 September from the global spirits leader.

Chief executive Ivan Menezes says the year has started well and the business is performing in line with expectations, though he warns that increased emerging market currency volatility is hurting sales and profit.

The Johnnie Walker whisky-to-Smirnoff vodka maker expects sales to be reduced by £175m this year and operating profits to fall by £45m directly because of foreign exchange fluctuations, as the high-quality compounder pays a short-term price for its diversity of geographic end markets.

Nevertheless, we remain an admirer of the spirits and beer producer’s coveted brands, which also include Guinness and Captain Morgan rum.

These represent an economic moat, engendering loyalty among consumers, conferring pricing power upon the business and creating barriers to entry for Diageo’s rivals.

Highly cash generative, the progressive dividend-payer returned £1.5bn to shareholders through a buyback last year and has begun a new £2bn share buyback programme for the 2019 financial year.

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