Diageo - mine's a Serengeti please

Diageo: This huge international drinks group has an amazing array of brands under its umbrella. These stretch from Smirnoff, Bell’s, Johnnie Walker and Gordon’s Gin through to Guinness. You even almost have to forgive them for inflicting Blossom Hill and Piat d’Or on the populace through your local Spar.....or maybe not. So their aim in developed markets is to add brands, develop brands and move customers up the price points. In emerging markets they want to bring customers into the branded space using both their major brands and acquired local brands. For example, on my recent Tanzanian safari one debate was whether Serengeti or Tusker beer tasted better. Serengeti won, but Diageo own them both. So this recipe should all secure long term growth of global GDP plus a bit. There are plenty of missed beats over time, say when emerging market economies wobble, the Chinese turn against graft or somewhere like Russia becomes a pariah. So, I find it really difficult to get that excited about Diageo unless the share price is in a market driven heap. Otherwise, it feels almost quasi bond like in its stately progress over the years.

At the moment the share price is around 1700p, with historic eps around 95p and dividend of 51.7p, giving a PE of 17.9x and a yield of 3.0%, nearly twice covered and backed by a reasonable balance sheet. And you could expect very long term growth of maybe mid single digit percentages. This all looks very unthrilling, but maybe you should compare it to a gilt and then you might surmise that for a modest equity risk you are actually adding considerable long term cumulative upside. In that sense, perhaps, it is base load for long term equity portfolios. Mind you 1700p may just also get you two bottles of Johnnie Walker Red Label or Bell’s at a desperate supermarket sometime in the run up to Christmas.  (Neil Cumming, 17th October)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

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