Stocks in Focus: Diageo

Thursday 14 February 2019

This week NW Brown look at Diageo, the global beverages giant, following its recent half year results for the six months to 31 December 2018.

The results were positive, with reported net sales of 6.9 billion, an increase of 5.8 per cent on the previous year, and resulted in the share price hitting an all time high. The results were once again driven by strong sales of gin and tequila, which grew 28 per cent and 29 per cent respectively. Key contributors to this good performance were the growing trend for drinking gin amongst millennials, with Gordon's and Tanqueray in particular performing well, and the increasing popularity of the trendy Casamigos tequila founded by George Clooney, that was acquired by Diageo in 2017. The company's recent launch of a 'Game of Thrones' branded Johnnie Walker whisky was also a success, with Amazon reporting sales of around one bottle per minute in the UK within the first 24 hours it was available.

Diageo has continued to focus on streamlining its spirits offering. The aim is to allow more focus on the distribution and marketing of its premium brands, including the gin and tequila brands, along with popular names like Guinness and Smirnoff. This strategy resulted in the sale of a portfolio of lower margin brands to US distiller Sazerac towards the end of last year, making Diageo 340m after tax.

Investors have also been reassured that Brexit will have minimal impact on operations as the group confirmed that everything sold in the UK is manufactured domestically, avoiding any potential supply disruption.

Following the encouraging results, management announced a share buyback of an additional 660m of shares from investors, which will take the total recent buyback programme up to 3.0billion.

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