I started a position today, too, in Diageo. Seems to me that c.15x earnings seems reasonable for a company that operates world class alcoholic brands (Guinness, Johnnie Walker, Baileys, Don Julio, Smirnoff). Plus share buybacks and management guiding towards medium-term low single digit revenue growth. Margins are also super strong even if the leverage is on the heavy side (FCF margins > 10%, NI margins > 15%, OI margins just under 30%).
I know about the "decline in drinkers" stories etc. - I am a non-drinker - but (from what I've seen) people are drinking less because they're going out less (exacerbated by Covid) not because they're "anti" drinking. At its core, people have been drinking alcohol as long as they've been eating food and procreating. Why would it stop now? Maybe the "trends" (i.e beer, spirits, cocktails) change but the point is people (generally) like to get drunk. If they keep liking the feeling (which I think most people do), they're not going to stop.
Of course, Buffett bought it ages ago (late nineties) and it didn't do that well. Maybe that's due to the effects of regulations, taxes etc. Thoughts from the thread? Is 15x earnings too much? (I do view it as a Buffett-type buy but he threw in the towel all those years ago...) |
