FEATURE
Why Johnnie Walkerowner Diageo is a wonderful stock to own From Guinness to Smirnoff, this drinks giant has a rich portfolio of brands and plenty of fans
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hares in premium drinks maker Diageo (DGE) are down 8% year-to-date amid worries over a global recession and soaring raw material costs. Also weighing on the price have been fears that drinkers might trade down to cheaper beverages as inflation squeezes consumer budgets, at least in the short term. Yet over the long term, Diageo is ideally placed to prosper from growth in premium drinks. With Diageo scheduled to have published its full-year results on the day this article is published (28 July), now is a great time to distil the many competitive strengths of a quality business that generates a high return on equity.
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Chart: Shares magazine • Source: FE Analytics
WHAT MAKES DIAGEO SPECIAL? It is home to some of the world’s most iconic alcoholic beverage names including Johnnie Walker, Smirnoff and Guinness. The £83.6 billion company boasts over 200 brands operating across 180 countries and has a worldwide distribution footprint and massive marketing clout. This unrivalled portfolio of brands confers pricing power on the business, crucial during inflationary periods, and underpin Diageo’s consistent profitability. A cash generative business model has enabled
the FTSE 100 group to establish an enviable dividend growth record, uninterrupted even by the pandemic, while investing in the organic growth opportunities and acquisitions and returning additional capital to shareholders through earnings-enhancing share buybacks. Another key competitive strength is Diageo’s global reach and dense distribution network which has cost advantages that allow the company to spend more on advertising and promotion, creating a virtuous circle. These strengths and its brandbuilding expertise also mean Diageo is an attractive home for upcoming brands looking for global reach and maximum promotion. Guided by CEO Ivan Menezes, Diageo has strong relationships with on-trade customers (pubs, bars, restaurants and hotels) and is also building its e-commerce and direct-to-consumer capabilities in order to further expand its sales reach to thirsty consumers. 28 July 2022 | SHARES |
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