Diageo is still a long term winner despite mixed trading update

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.

‹ Previous2018-09-27Next ›

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 Youinvest.

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.

The Shares team
Disclaimer

Issue contents

The value of your investments can go down as well as up and you may get back less than you originally invested. We don't offer advice, so it's important you understand the risks, if you're unsure please consult a suitably qualified financial adviser. Tax treatment depends on your individual circumstances and rules may change. Past performance is not a guide to future performance and some investments need to be held for the long term.